Why Cash Accounting Is Holding You Back. (E.296)

WHAT THIS EPISODE REVEALS

“Most dentists are flying blind because they don’t see the real financial picture. Cash-based accounting was never designed to run a business. Big groups know that and they use accrual accounting to win.” – Ken Kaufman.

In this episode, Ken shares why accrual accounting gives you the clarity and control big DSOs rely on. He explains how AccruDent cracked the code to make it accessible to private practice owners.

WHAT YOU WILL LEARN

✔ Why cash-based accounting gives you a false picture of your business.
✔ How accrual accounting unlocks financing and growth opportunities.
✔ The emotional toll of financial lumpiness and how to fix it.
✔ What banks really want to see before they lend to dentists.
✔ How AccruDent simplifies accrual conversion for any practice.

IF THIS SOUNDS FAMILIAR

Your P and L does not match what is really happening in the practice.
Your CPA tells you cash accounting is good enough.
You are struggling to secure financing to grow your vision.

This episode gives you the roadmap to clarity, confidence, and scalability.

STOP FLYING BLIND

Get clarity in your numbers.
Build trust with banks and investors.
Grow your practice with confidence.

Ready to align your team and systems for growth?
Learn more at the Clinical Calibration Institute.

TRANSCRIPT

[00:00:00] Regan Robertson: Doctor, if you’re a dental entrepreneur and if you’re listening to this podcast, you most likely are, you’re probably looking to grow and you might be following the advice of some well-meaning CPAs who tell you to stick with cash-based accounting, but what if there was one thing, in fact, that very thing holding you back from securing financing and scaling your vision? Today’s guest, Ken Kaufman, is the CFO and Co-founder of Crot, and he’s here to explain why. Switching to accrual-based accounting, I know. Hang in with me. This is gonna be a good hour. Isn’t just smart, it is essential. Ken helps emerging DSOs group practices and dentist gain the financial clarity and credibility they need to grow with confidence. Ken Kaufman, I met you in Salt Lake City. It was my first introduction and from the word go, your passion comes through loud and clear, and I’m thrilled to have you on the podcast. Welcome.

[00:00:57] Ken Kaufman: Thank you, Reagan. I’m thrilled to be here. 

[00:01:01] Regan Robertson: So this is a great mashup, listeners, because you’ve got me the very creative, think of the uh, yeah, the creative butterfly floating around in this conversation, and then you have the security, the structure, the discipline of finance, and actually that’s one of the best marriages in business because when strong structures are in place and systems are in place, the creatives of the world really are free to, um, freedom is the word. They can create and feel really beautiful knowing that they’re well held, and I see that a lot in business, Ken, uh, when, when the structure’s in place, everything else can flow, and dentists to me, I don’t know about you, but they’re like a combination of engineer and artist and Right. Do you kind of agree with me there?

[00:01:44] Ken Kaufman: Yeah. Uh, they’re, they’re manufacturing like, like literally they. They’re, they’re building and they’re manufacturing things and fixing things that, you know, a lot of times, if I put it in the context of construction, they’re, they’re literally like doing construction, but it’s on people’s teeth rather than, and, and you’re going to, and you’re bringing them to you, rather than going to that big job site where that construction project is occurring.

[00:02:09] Regan Robertson: Yeah, and when I, you know, when I think about accounting and how we show up and, and whether we do cash based accounting or accrual based accounting, there’s so many things going on in any given day that it can be, you know how I do it as a leader anyway. I mean, I think about what, what’s inviting risk into my thought process and I tend to eliminate those risks quickly, or I deprioritize them and I move on, and a big narrative right now in dentistry is, you know, we’re taught this is how to, to run well if we’re taught how to run a practice, but when we get to that point, uh, you know, why, why move away from cash accounting, especially if dentists are being advised above and all by their CPAs to stick with it. So bust that myth for me. One, are CPAs doing what I think they’re doing and, and recommending cash-based accounting as the the prevailing theme? And if so, what’s the hidden downside of that advice that you’ve seen? 

[00:03:00] Ken Kaufman: Sure. So, the difference between cash basis and account and, and cash basis and, excuse me, uh, cash basis and accrual accounting is that one of them is accurate and the other one is not in terms of actual performance, and one of the ways that I like to share, help dentists understand this is regularly when I engage with dentists, they will tell me, ”Hey Ken, my collections this month was more than my production.” Yeah, and then the next month they say, well, my production was lower this month than my collections, and they go back and forth and back and forth. Accrual accounting actually unpacks that so you can actually see and understand what’s going on. So it’s not about when cash is coming in and out of your bank account, now it’s actually what work are you accomplishing during that period of time? And. What is that worth in terms of the ability to ultimately collect it over time and that, that’s the biggest piece of the puzzle and it’s really hard to pull together and do, because cash basis accounting is easy, and the reason why is because you can just look at like what’s literally coming into the bank and you can put that in and say, here it is, here’s, here’s the financial statement, and this is everything that happened in the practice, um, that gives a very, uh. I, I, I would say unfair view of what’s actually occurring inside of the dental practice. It has nothing to do with your performance, has nothing to do with when cash is showing up, because the cash is dependent on did your RCM person actually process correctly? Have you filed claims correctly? Have you, uh, you know, adjudicated claims? Have you gone through the whole process? All of that is just a big ball of mess that ultimately you’re handed cash basis financials and they are lumpy. Meaning one month you might have collected a lot more than normal or on average, ’cause maybe there was an insurance company that had held back on some payments or whatever, some period of time. So you’re like, “Well, look, I’m awesome. Look, my revenue went up like this,” and then the next month, then it comes cratering down again, and so it just gives. It gives an inaccurate picture of what’s actually really happening in terms of the value you’re creating for your patients.

[00:05:19] Regan Robertson: There is a, uh, foundational question that I didn’t even ask you right up front. How do you define cash accounting and how do you find define accrual accounting?

[00:05:27] Ken Kaufman: Sure. Uh, cash basis accounting is literally the money that’s coming in and out of your bank account, and, and then it’s ultimately saying, and, and this is the way like QuickBooks and a lot of these, uh, and zero and these softwares, they generally are just capturing what are all the transactions that are happening, and then you can codify them and say, well, this is a supply and this is, uh, labor cost and this is payroll, and so on and so forth, um, the cash basis accounting is that. Accrual actually looks at not what’s coming in into the bank in and outta the bank account. It looks at what production did you actually create during that period of time? Let’s say during a month, uh, a period of time that’s one month long. You can see what actually you did and what you actually accomplished versus what’s happening with the cash going back and forth, uh, in the practice.

[00:06:24] Regan Robertson: So understanding the difference between the cashflow model and the accrual, I’ve gone through this myself and understood it, and it is a little bit scary thinking about, okay, this isn’t what I like physically, tangibly have my hands on necessarily right away, but this is gonna create longevity for me. Can you give me some examples that are, listeners can say, oh, okay. I know exactly what you’re talking about. Like, they get to the end of the month and they’re looking at their, their p and l or their, their cash, what? Gimme some examples so that they can feel this tangible and inaction.

[00:06:54] Ken Kaufman: Sure. The easiest one I can give I, I’m gonna start with a construction analogy and then I’ll come back to dentistry, but my very first CFO job, I was so excited. I, I, and by the way, I got that gig. I was way too young, way too inexperienced, and here, here I am, and I walked into and, and my goal was with my career. I wanted to be an executive. I wanted to be an executive team. I wanted to be giving or be, be part of building a growing company and organization, and I just, I knew I was passionate about it and, and wanted that to happen. I walked into my very first executive team meeting and I’m like, yes, I’m here. I finally made it. I did, jumped through all the hoops I had to, and I sat down and the most amazing thing happened. These six executives sitting around the table had a 30-minute argument about why the financial statements were wrong. Wait a minute. We’re a construction company, but we bought up all these supplies, but we haven’t used them yet, and so that’s why our expenses are too high, and then they jump over and say, “Well, wait a minute. Like this one contract over here. They, they haven’t paid us on time, and so that’s why in the financials, this is wrong and this is wrong,” and so they’re going through all of this debate back and forth, and I’m the new guy in the room. I don’t know what I, I, I don’t know what I don’t know except that. I kind of as, as the 30 minutes sort of wound down, I raised my hand. I said, “Hey, did you guys know there’s a way to actually solve so that we don’t actually argue about the financial statement, but it’s actually accurate and right from the very beginning, so then we can actually have a great discussion and figure out how to grow and build and, and, uh, do what we want to in terms of building out the company?” And it was, it was fascinating. I had, at that point, I had never done an accrual conversion. I only understood it, um, I only understood it, uh, just in, in my mind, right? 

[00:08:51] Regan Robertson: In theory, theory, not application.

[00:08:53] Ken Kaufman: Thank you, and so then I, I went down this journey and that was the very first company that I, uh, turned to accrual, and guess what? The debate stopped because we had truth in front of us, and if they say the truth will set you free, it sets you free then to figure out how to continue to build and grow and make your business more successful.

[00:09:15] Regan Robertson: I love this, Ken. I can, I can apply it just from a home instance, right? Like in a snapshot because, well, okay, so my husband came to me this week and he said, “By the way, just so you know, uh, you’re gonna see like a $900 Amazon fee come, like charge come through, but, but you know, it was like, it was like hands up,” and he explained to me that he went through all of our recurring subscriptions, right? Everything that we typically do was Amazon Prime Day, which there’s drama around that, whatever he went through and he compared it to what he had been spending, and he selected those items and pre. You know, got ’em ordered so that we would save money in the long run. I think because of you and others like you that have helped guide my financial journey, it’s an easy discussion, but if you look at it from that blinders on, short list, that’s nine, that’s 900 bucks. Just, you know, where, how does that, how does that space out over time? How do you make good forecasting and, and financial decisions that take down some of that argument? So there was no argument whatsoever. It was, oh, how smart are you? Let’s. Let’s move forward with that. So let’s translate this,

[00:10:17] Ken Kaufman: And interesting is, yeah. ’cause when you have that situation, right, you have this one time expense mm-hmm. That is gonna get spread out over time, and that, that’s where lumpiness can occur. ’cause you’re like, well wait a minute. What? What happened? And why is this here? Why is this there? And so what. Literally you do is you say, okay, well how long of a period of time should this amount be, this $900 be spread out and let’s say it’s nine months to make it easy, and then you say, okay, then our, in our accrual, what we’ll do is, is we will book the full amount and then we will amortize it over those nine months so that it, it is released. That nine, you know, the $90 or whatever it is every month until you get to, uh, where, where it’s done and it’s over and it spreads it out, and all of a sudden you don’t have this big, huge lumpiness in your financial statements. It’s smoothed out because that’s what truth and reality actually is.

[00:11:11] Regan Robertson: It’s just, I think this translation is so beautiful. Uh, let’s move it into what type of hidden opportunities exist that would, that accrual accounting helps you benefit from that, that doctors might not even know is a possibility for them. So what, what is out there that just grinds your gears and you’re like, if you only knew?

[00:11:33] Ken Kaufman: The number one benefit that comes when you put accrual accounting in place is that your information is now accurate. Now you might say, ah, who cares? It’s just a small dental practice or a small dental group, and why does that matter? It matters because the more accurate your information is, the more accurate you can forecast the future. That’s it. That is the number one benefit that comes when you’re on accrual, because then what can happen is I can then take your financial information and I can turn it into a forecast that tells you over the next 13 weeks what’s gonna happen to your cash flow. That’s power, that’s understanding, um, I, I can give you an example, um, there’s a client that. I’ve been working with for quite a while and we are in the process of getting to accuracy and then getting to a state, uh, um, uh, a cash forecast model. He has been in the dental industry for 20 years and he has always had to guess when it’s time to do distributions and different things, and he’s just been guessing at, am I gonna have enough cash to cover this? And what about this, and what about that? And so the, the power of accrual accounting in and of itself, it gives you total accuracy, and with that accuracy, it then gives you the ability to project into the future, and the further you go and the more validated those assumptions are, guess what? The more valuable your company is over time, your enterprise value increases every month that you are doing accrual accounting and, and then you are building and growing your plan to build and grow your dental group or your dental practice. It’s um, it’s a little bit nuanced there, and there are a lot of financial frameworks that we layer in when we help, uh, businesses that are ready to kind of make this shift, but it’s, um, again. I go back to the, I’m in that executive team meeting and the debate is gone, and all we do is we go to truth and T=truth sets us free. It, it allows us and empowers us to grow, even if the truth is hard. Even if we don’t like what it says, at least we will know what it is so that we can fix it, change it, and grow, and I, I’ve know, I know a lot of people in the dental, dental industry. I’ve been here a long time. I’ve been here more than two decades, and I’ve not, I’ve never come across a doctor that’s dumb.They’re all super smart. I’ve never come across leaders and executives that are dumb. They’re all super smart. You give them the right information, they will be able to build and grow whatever business you put in front of ’em.

[00:14:13] Regan Robertson: Wow. When you, I, I have two questions. One, I wanna know about these frameworks, so I’m gonna ask you about that, but first, uh. When I think of being able to forecast, I think about being able to make more in, you know, better informed decisions, and also having a runway to know when I can activate some of those decisions. So it might be expanding the practice, it might be adding another location, it might be bringing on associate. What are some of the different, uh, growth plans that you’ve seen dentists who benefit from this accrual model have taken advantage of?

[00:14:46] Ken Kaufman: Yeah, I can share one, and I think you, Regan, you might actually be, uh, familiar with this group, but this is a group that was built, has been in the process for many, many years, building out a group of dental practices. They got themselves to nine, uh, dental practices and, and I don’t remember, 20 million in revenue somewhere. 30, 20 to 30 million in revenue. Super impressive, and they had done a, they’d done a great job and they, however, were hitting this, uh, wall where they needed to borrow more money in order for them to grow ’cause they wanted to grow past that nine locations. They had some, uh, lots of great ideas about how to do things, and they had successfully grown through acquisition, buying practices and retaining doctors, and the, the, a really, really good model, good clean operators. Everything but the bank said, “Hey, guess what? Your financial statements are on cash basis, and we know that that means that your financial statements are wrong and we’re going to require you to switch to accrual so that we can actually see what’s happening and get confidence that we can actual actually borrow, uh, you, we can give you more money, uh, so that you can take on these other acquisitions.” So it’s interesting, right? The banks even know we can’t, they, they cannot trust cash basis accounting because it’s wrong.

[00:16:10] Regan Robertson: Wait, pause, wait. When you say wrong, I love this. Help me define what’s wrong. Is it because they’ve got outstanding, uh, you know, outstanding revenue that should be coming in and that’s not reflected?

[00:16:22] Ken Kaufman: Um, so there are several pieces of the puzzle there. Yes, but on, on the, um, revenue recognition side of it, what we’re really getting at here is what procedures have been completed, but have not yet been paid for.

[00:16:41] Regan Robertson: There we go. Okay. So I wanted to be crystal clear about why something, you know, why they, why banks would, because banks don’t operate on a lot of emotion. It is really factual. It is very analytical, and so when I, you know, putting that definition to me as a, as, as you know, somebody who makes decisions, understanding what the, the bank’s view of right and wrong is, is important.

[00:17:04] Ken Kaufman: You know, and besides, besides the accounts receivable and, and you know, that piece of it, the other part is the expenses, and in, uh, the world of accounting, we have something called the matching principle, and that is the matching principle is when you generate revenue, the costs associated with being able to generate that revenue need to be lined up in the same period. So that the, the supplies that are used. The labor that’s, that’s used, the doctor pay, that’s, that’s, you know, given to the doctor because they’re the clinician and, and doing all the work on the patients, the, the, the, um, hygienist, all of that. This, this matching principle brings everything together so that now I can look at any period of time and I have got true, accurate views of what happened during that month, and then if I wanted to, I could figure out what didn’t happen that month that I needed as well. That’s usually not what, where people wanna focus, but I, I, I can say to you, this is exactly true and right, um, and there’s, there’s just these levers that you pull that move, that convert from cash to accrual. You’re there, and guess what? Your banks are gonna trust you. They, they, they view you through the tiny little keyhole of your financial statements, and if they’re on cash basis, you can get away with it for a while. If you’re a new associate and you’re getting a Bank of America loan, they, they don’t care. They know that you’re not gonna be, uh, you’re, you’re not gonna be anywhere near accrual ca uh, uh, accrual, um, accounting yet, but as you grow, and if you have those types of aspirations, it’s absolutely mandatory.

[00:18:42] Regan Robertson: I wanna switch gears a little bit, uh, and, and ask you about the emotional toll that you have seen with dentists, uh, especially as they are continuing to operate in, in the cash mindset, and they’re not, they’re not, um, you know, they’re not embracing accrual yet, and. What happens when they get hit with those sup, you know, financial surprises, liabilities, and forecasting challenges Since you’ve worked intimately with so many practices, I’m curious, there’s gotta be some patterns that have popped up with you, um, over the years and that transformation that’s occurred once it finally happens.

[00:19:19] Ken Kaufman: Yeah, this is a great question and we could probably take days to unpack this, um, money is a really interesting thing. It, it drives emotions that are so intense and sometimes really weird, um, and, and so the relationship that a dentist has with their dental practice and with look, understanding the financial elements of that and how it works, uh, often there’s identity that’s wrapped up in it and I’m, well, I’m, I’m a bad person because I had a bad month and, you know, or I had a, a really bad, or I had a, a procedure that just went really bad with a patient and it’s gonna cost me some money to, to get this figured out and straightened out, and I feel horrible about what’s happened, and so like all, all through all of these things, money plays a part in the emotional toll for I made a mistake, um, or I, you know, I, I have an employee who stole from me. Like, we have so many different, um, uh, pieces of the puzzle here. Money evokes emotion, um, and often it can be very negative and frustrating, and so what I generally find is, is dentists that feel like they’re getting beat up, they actually retreat and they don’t wanna talk about their financial statements. They don’t wanna talk about why they should be on a cruel because they’ve been kind of beat down over time. As they’ve had some victories, but then they feel like they’ve had a lot more losses than victories, although sometimes they don’t. We all struggle to, to put com to compartmentalize those properly is probably the right way for me to say it, um, but again like I said, I’ve never met a dentist that’s dumb. They’re all very super smart people and, and extremely capable, um, yet sometimes there’s this emotional toll that just eats at us and eats at us to where, I don’t know. I mean, we, we’ve seen people just leave dentistry because it’s stressful and, and, um, everything that goes with it. So I hope that started to kind of answer that question. I think there’s a lot of depth into it.

[00:21:27] Regan Robertson: It does, and what’s really interesting is that the leaders that I have the honor of interviewing, they usually look at things from a systemic point of view. So they’re never really interested in the surface. They wanna go right to the root of whatever is going on, and um, we just had Allison Laier as a one of our podcast guests, and the one big takeaway that I got from an incredible hour with her was. What is your money wound and, and what is that story telling you? And, and she asked one question and it was, uh, you know, what is your first memory with money? Then she just sort of let it go from there, and I, it’s fascinating to me because when we talk about the banks and we talk about the non emotions, emotion is always at the heart. There’s, you can’t separate the two, but having systems in place and a guide to help us release some of that, um, uh, frozen moments, if you will. Like you said, doctors will either run away or they will avoid or they will just straight up freeze. I think that’s so common because the thought, like, to me, switching something as intimate as, as doing cash accounting would, would make me a little feel daunting or nervous if I’ve not done it before, and so trust is, is absolutely critical. I want you to tell me about these frameworks. I’m a frameworks girl. I love frameworks. They’re, you know, it’s repeatable, it’s scalable, it tells me it’s proven. What are some of these frameworks that you’ve developed?

[00:22:51] Ken Kaufman: I’m, I’ve gotta make sure that I, uh, ’cause you’re, you’re gonna, you’re gonna, um, you’re gonna make sure that I give you every single one of ’em. So I’m gonna pull it up right now. It’s actually right, and here, here’s my truth for everybody. I can’t even ever remember all of them ’cause there’s a lot of them, and, uh, so I actually have to have to go to my own website, um, in order to, uh, pull them all up.

[00:23:15] Regan Robertson: You can plug that right now, acronym.com.It’s good to know you’re using your own website. That’s a great sign.

[00:23:24] Ken Kaufman: I may be the only one, but you know, so when we talk about the, the frameworks. It starts with consolidated and consolidating financial statements, and that means we’re not just looking at one independent practice, we’re actually putting it all together so we can see what’s happening overall. So like the big DSOs obviously do a lot of this, um, a single practice wouldn’t do this, but once you get to a second practice, you would want to be able to look at each practice, but then also look at what does it look like on a consolidated basis. So that’s one of them. Uh, the second framework that we focus on, Regan, is cash and I’ll, I’ll tell you right now, most of the dentists that are listening and, and group owners and, and, and everything, they generally look at two financial statements every month from their bookkeeper or whoever’s doing all that for them. Income statement and balance sheet.

[00:24:28] Regan Robertson: Okay.

[00:24:28] Ken Kaufman: Did you know that there’s a third one?

[00:24:31] Regan Robertson: Is one of those, the p and l.

[00:24:34] Ken Kaufman: P and L and income statement are the same.

[00:24:36] Regan Robertson: Okay. Okay, good. Okay. What’s the third one?

[00:24:39] Ken Kaufman: Statement of cash flow and the, and, and here’s the, and, and everybody forgets about this one. Mm-hmm. That’s most important, and the reason why, and, and in fact, if you said, okay, Ken, you can pick one of three income statement, balance sheet statement of cash flow, which would you take? I would take the statement of cash flow every time, and here’s why. That statement of cash flow tells me one thing that I care about. Is my business generating cash, or is it consuming cash?

[00:25:11] Regan Robertson: Oh, heck yes. Oh, you can, you can see like that.

[00:25:17] Ken Kaufman: It’s right there, and then you can go one layer down. It’s, it’s called free cash flow, and it’s where we take, um, all, everything that’s generated from operations, all the, um, yeah, so it’s all, it’s cash from operations minus, um, CapEx. Mm-hmm, and when you run that formula, uh, tell right there, that’s everything you need to know about if you are, if you’ve got a great business or if you’ve got a sinking business. That’s, that’s it. So

[00:25:48] Regan Robertson: I, oh, I love simplicity, and you’re, you’re not kidding at all. I, I know. I know what that looks like and it is. It is, and you know what, it’s very vulnerable. It lets you know definitively immediately, and, and so there is some steps to take to getting to that point, but you must, that’s to me, you just captured for me what truth is. How are we doing? One statement that could tell us that and, um, you know, then we can go from there.

[00:26:15] Ken Kaufman: It’s interesting, like even like QuickBooks and some of these things, a lot of those financial software, they really are not fully equipped, especially to handle, uh, a consolidation where you’ve got multiple dental practices put together, um, they really struggled to, to push out a, a good clean statement of cash flow, um, and it’s funny, but my team, when we’re doing accrual conversions and we’re putting the statement of cash flow in place, um, we have the most problem with the statement of cash flow, uh, and we have to do a bunch of manual work usually because everybody’s developed so much around the income statement and the balance sheet that the, the statement of cash flow is, um, dismissed, um, and we have, we a lot of work, our clients. We tell them they need to know this information, and then we gotta make sure we get them the information right. So it’s, uh, it’s an interesting process. So that’s, that’s the cashflow one. The next one is what we call benchmarking, um, and ranking file, and this is when you have multiple practices, you put them literally side by side for every line item of activity and you compare yourself, not to the outside world. You compare yourself to each other, and the reason why is ’cause now you’ll find the ones that are doing well in certain areas, the ones that are not doing well in other areas, and then guess what? You tell the practice manager who’s really good at this to go over to that one, and you can grow your dental practice so successfully by never looking at benchmarking stats from anybody else, but you just look at and you make a friendly competition amongst your dental practices and your providers and everything else to create really amazing outcomes, and so like I’ve dentists all the time like, “Hey, what, how, what’s the benchmark for this? What’s the benchmark for that?” I’m like, I don’t know. Like it matters what’s going on in your practice and how you guys do things. Why would you compare yourself to some other person who’s running a completely different model?

[00:28:09] Regan Robertson: Right. Those, uh, so any other frameworks you wanna share?

[00:28:15] Ken Kaufman: There’s like 20 of them.

[00:28:16] Regan Robertson: Okay. We will, so we’ll say, go to the website and you go through all of the frameworks, but it does give a really good flavor to what people can, can really expect, and I’m wondering, uh, if you could take us through well. Take us through the process, but I’m, I’m curious, what sort of agreements do you put in place with doctors who are, I call it, well, Bruce Baird calls it handling objection before, it’s the objection, which I’ve sort of taken and run with throughout my life, but what kind of agreements do you make along the way to help a dentist feel, um, safe for something that really is honestly quite simple, but can feel like it’s not?

[00:28:52] Ken Kaufman: Yeah, it’s, it’s a hundred percent about education.

[00:28:55] Regan Robertson: Mm-hmm.

[00:28:55] Ken Kaufman: Again, there’s no dumb doctors in the room. They’re all smart, um, but they haven’t gotten education in these areas. So it’s, it’s about framing it the right way and it’s about educating them so that they can actually look at it and look, look at this financial information and actually start to gain intuition around it and, and start to. It, it, it’s a muscle that just hasn’t been exercised yet, and so as you exercise it, you’re gonna get better and better at understanding it, and the, it’s the funnest thing when we have a client that really doesn’t have any confidence around finance to months later, um, and they’re, they’re, they’re literally calling me before I’ve even had a chance to look at the financial statement, and they’re telling me this and asking me questions about that, that that’s magic.

[00:29:49] Regan Robertson: I was gonna ask you about the mindset of the doctor that switches. So the practices that switch, um, do you feel like it’s, it’s not just freeing for them from the forecast, but do, do the, does physiologically, like almost, do they feel like they have more opportunity and, and more space to think about what’s possible?

[00:30:09] Ken Kaufman: Absolutely. Again, because now. Uh, accuracy solves for all of it. As soon as you know that it’s accurate and right, you can trust it and you can make decisions based on it and know that you’re coming from a, a place of total truth.

[00:30:24] Regan Robertson: Have you seen any, uh, any crazy, uh, good but good, but like some really off the wall kind of changes that have come about, like, wow, I was going down this path, I put this in place, and now I see new opportunities that I never would’ve thought before.

[00:30:39] Ken Kaufman: Yeah, um. So, so many of them I, I think. Honestly, it’s where, where the biggest bang for the buck comes is when you have a bank that actually values that and needs that to happen, um, in order for you to continue to build and grow your business. That’s usually like where, where we get a lot of real, real bang for the buck, so to speak, and, and there’s massive, massive value that comes to them, um, and then there are some more subtle ones where all of a sudden now when they’re looking at something, they know that they’re not allowed to argue about it anymore, about it being right. That’s, that’s not allowed in the conversation because we’re now at a place where we know we have accuracy, and so that means that we’re looking at truth and we need to absorb the truth and allow the truth to set us free. 

[00:31:33] Regan Robertson: How do, how do CPAs tend to react to, to this recommendation to switch?

[00:31:38] Ken Kaufman: Super frustrated.

[00:31:40] Regan Robertson: Why? Tell me about that. I just, ’cause it doesn’t make sense to me, obviously, ’cause I’m not in the financial world, but I don’t get why they wouldn’t say, this is amazing and a great idea.

[00:31:48] Ken Kaufman: So, there’s probably two main reasons. One is it’s super hard to do I’ll, and I’ll come back to that in a second. The second one is that when a tax CPA has a client, what they want is they want that client to be able to give them really clean financial information every year so that they can go and do taxes.

[00:32:12] Regan Robertson: Mm-hmm.

[00:32:13] Ken Kaufman: When you convert a dental practice or a group to accrual that messes them up, and the reason why it messes them up is because they generally are gonna file your taxes and, and I’m not a tax advisor here. I’m not gonna give tax advice. I’m gonna tell you just what I know from the hundreds and hundreds of conversations and CPAs that I’ve interacted with over the years. They want to file your taxes on a cash basis, because a lot of times that’s more advantageous from a tax perspective, but if your books are being done on an accrual basis, there’s a conversion that has to happen where you have to say, oh, well this is what the accrual is. We now need to adjust it to become, uh, tax basis or a cash basis so that the taxes can be organized and done and paid based on that  and so

[00:33:10] Regan Robertson: That makes sense. That totally tracks.

[00:33:12] Ken Kaufman: So it’s a little, it’s a little bit of extra work and effort, um, it’s called an. Regan, I’m, I’m a nerd about this, but it’s called an M1 adjustment, and when you put me in a room with a CPA and they’re complaining about it, all I will do is say, “Hey, how about every year we’ll go ahead and do an M1 adjustment for you on this, um, and then that should make the tax return very easy.” That’s,

[00:33:35] Regan Robertson: And what did they say?

[00:33:37] Ken Kaufman: They say, “Oh, okay. Yeah, that’s fine.”

[00:33:39] Regan Robertson: So you offered to do the M1 for them. You offer to do the adjustment and then they don’t have to do it. Yep. So really what’s truly frustrating them is just more work for them. No, they’re trying to, I, so they’re serving themselves as opposed to really thinking about the longevity of the group and the practice and the doctor’s ultimate goals.

[00:33:57] Ken Kaufman: Yeah. Yeah, and I think the other, 

[00:34:00] Regan Robertson: Not to knock you guys, not to knock you CPAs, I’m just trying to understand.

[00:34:03] Ken Kaufman: Well, no, they, they’ve got a, they’ve got a very hard job, very diff job, and you know, with the clients we work with, we’re good friends with those CPAs. ’cause we, there’s, there’s a lot of back and forth in, in making sure it all goes. The, the other part though, that I said to come back to is. When it comes to accrual, and I said it’s hard, what it requires you to do is reach into the practice management software and pull out information and data that is very nuanced. It’s hard to do. Mm-hmm. It’s hard and it’s hard to to get right. For example, I may need to go and say, “Hey, I need a balance sheet as of this date, um, so that I can, and, and I need a, a production report as of this date, and sometimes these practice management softwares don’t save information and things get lost,” and, and it’s, and it’s hard to find, and so the thing that we’re doing at Accruent is we’re actually cracking the code in all of the practice management softwares where we’re going in, we, we do a data schema. We pull everything together so that, because my goal is to democratize accrual accounting. Everybody should have it, and right now there are some myths out there that it’s way too expensive, it’s too hard, it’s complicated. It messes up your taxes, so on and so forth. Those are, those are some of the knocks, and so all, all we’re doing is, is we’re one by one, eliminating them completely so that we, because we want to build a platform here that the entire industry can benefit from Accrual County, not just, not just a few who. You know, listen to this podcast and say, “Hey, I, that sounds like a good idea,” because everybody needs it. Everybody needs it.

[00:35:39] Regan Robertson: So typically, has it been, uh, a sort of a gate kept, uh, way to do business because of cost? Has, has accrual accounting in the past been something that has been cost prohibitive?

[00:35:51] Ken Kaufman: Yeah, um, the, the answer to that is yes. Mm-hmm. I’ve, I heard of, and I, I, I’ll get the information here wrong, just because I heard it kind of on a secondhand basis, but there was a group that really wanted to convert to accrual. They’re fairly large, and the bigger it is, the more complicated, you know, that’s just how things work in dental, and I believe that they spent a hundred thousand dollars with a group that was helping them convert to accrual and never actually got it done.

[00:36:22] Regan Robertson: Oh, no

[00:36:22] Ken Kaufman: And so that was, that was the tip of the iceberg for me. When I heard that story, I said, there’s no, that is so wrong and bad. We’re, we’re at a place now where we can basically, we haven’t cracked the code on all the PMSs yet ’cause we’re sort of working our way through based on client needs and, and those sorts of things. We didn’t start with with that completely done, um, but we’re at a point where. Depending on the PMS that you’re on, you can get accrual accounting for really close to what bookkeeping costs. It’s not, it’s not inordinately expensive.

[00:36:57] Regan Robertson: Okay. What I love about what you just said, and you know, you hit my hearts. Uh, if you’re listening right now and you don’t know who Ken is, the little background secret is Ken has been the CFO for some enormous organizations within dentistry, and, uh, I love nothing more than to find out what people who have been massively successful do and then bring it back to small businesses, and when you said democratize, you obviously captured in one word. I think what you’re trying to do and maybe why you’re, uh, how you’re driven and why you’re driven so passionately forward, there is nothing greater than saying, we know how the big dogs do it, and you can do it too, and you’re making it available. So Ken, walk me through like the 1, 2, 3 step process. How, how does someone begin to take those steps to put this into play in their own practice?

[00:37:49] Ken Kaufman: Here’s the thing. In this instance, the doctors and people running the, the practices and the business, um, they’re worthless to us because everything we need is already in the PMS, and so we, this is literally a done for you. We show up, we do everything, we put it in place. There’s a series of journal entries that have to get put into the books, and if it’s QuickBooks or whatever, and we’re working with the PMS, and literally this is here’s how much time we need. It’ll be done on this date, and it’s done and it’s in place, and I’ll tell you this, right? One, one thing that we do, uh, that I learned early on, I, I made this mistake with one of our first clients. We fixed it for them, but what we do is, is we actually go back 12 months and we do the accrual starting 12 months ago, and the reason why is so that then today when you’re comparing your financial performance today to prior year, it’s all equal and you don’t have the conversion messing up or creating issues, and so that, that’s, that’s how we do it. We show up, we go 12 months back. We bring everything, anything up current that needs to be current, and then, uh, it, it’s done, and, and their financial statements are just now in that format, and then every month there are some adjusting entries that need to be done, some reversals and some new AR balances and things like that. We do that. We work with their team. If you’ve got a bookkeeper, we’ve show ’em how to do it. Sometimes we give them the entries and they put ’em in. Sometimes we put ’em in what, just whatever makes sense to do, um, and then, and yeah, like I said it, the doctors are really worthless to us in the process, but then what happens is now we’ve empowered them because now they’ve got truth and with truth. Now we can go take on the world, go take on our growth initiatives and feel confident we’re not gonna run outta cash in the process.

[00:39:41] Regan Robertson: Well, and what I love about that so much is it’s not that, that so much, maybe that they’re worthless, but I mean, they don’t have to, they don’t have to do heavy weight lifting. That you have the information and you’ve said the word hard a little bit ago, and, um, that it can be complex and it can be, can be hard. I think the word hard is very relative. For example, if I was to perform a, uh, a crown, of course for me that would be impossible because I have no experience behind it, and I formally, I like soap. Everything I have believed that if you’re running from a place of passion and you are dedicated to that passion, you can help make things easier for others, and with your frameworks, with the software, with your, like all of the thoughtfulness put into this, I can see it being easy and not difficult or complex for the doctor. It sounds like you can come right alongside them, uh, and and make that change your reality so that they can grow.

[00:40:35] Ken Kaufman: Yeah, that’s right. You said that much better. I don’t mean your, I don’t mean that they’re worthless, but just in this one tiny little thing, they should be because they’re great clinicians and they need to, they need to be 

[00:40:46] Regan Robertson: Exactly, they should be worthless in certain areas because I would be worthless in certain areas though. I, I, I like that a lot. Uh, this has been an amazing conversation with you, Ken Kaufman. Uh, I love, I love what you’re doing. I absolutely, uh, love that. There’s this possibility that, that didn’t previously always exist, or if it was, it was a lot harder to, to come by. Uh, are there any questions or points of note before we close this out that doctors should write down and they, you know, if they’re considering this, uh, or if they, if they’re wondering, is this the right fit for me?

[00:41:18] Regan Robertson: What would you, what would you have them reflect on?

[00:41:21] Ken Kaufman: So I think that in addition, we have. An interesting opportunity here where if somebody’s listening to this and they say, “Hey, I, I might be interested in this, or I want to take a look at this, and accrual accounting sounds really compelling,” or, “I’ve been thinking about this for years,” because I’ve, I’ve been preaching this from various pulpits for years and, uh, so some, uh, have maybe are just tired of me altogether talking about it, but I think, um, if you feel at all inclined, we’d be happy to have a brief, very brief conversation and say, Hey, here’s, here’s what it is. Here’s how it works, um, and, uh, we want to try to ultimately help this whole industry get there, whatever that means, and how whatever we have to do, um, to do that. I think for doctors specifically. What we need is, we need you to trust that there is a right way to do this, and there’s a best way to do this, and if you allow for that to come into your life, it’s gonna make your life better, um, in, in many ways, your bankers will love you. Your spouses will love you. No, they already love you, but you know what I’m saying? Like all of a sudden. You, you become bankable. You become, there’s just so many benefits, uh, that, that, that come to it. If, if you’re thinking about it, um, you know, come check out our website. There’s a lot of information there. We’ve got, in fact, we’ve even put the whole formula in. If you want to do a cruel yourself, it’s right there in a blog post. Journal entry by journal entry. Here’s how you do it. So like, it’s that, that’s our commitment to try to democratize.

[00:42:57] Regan Robertson: Why do you care so much about the democratization of this? What drives you?

[00:43:05] Ken Kaufman: Number one, because everybody says it can’t be done, and I’m, uh, I’m a, I’m a little bit of a, I’m an zag when everybody else is zigging, um, and. I actually think that the industry itself is, has played the ignorance card for way too long, um, and there are a lot of things in dental that frustrate us. In fact, I think I’ve told you this very again, but I’m, I’m working on launching a podcast, um, and it’s gonna be 100% about, um. The truth tellers in dentistry, and we’re gonna, we’re gonna be unpacking the stuff that nobody talks about, but needs to be talked about, and this is one of ’em I, like, there are bookkeepers and accountants, they know better, but they’re not practicing what they, what, what’s being preached and what the best practices are, and so, and again, I hate to call the entire industry out. Please don’t blackball me. I’m, I’m just trying to do the right thing here, but, uh, yeah, we’re, we’re on a mission because it’s being done wrong. It’s been done for so long that everybody thinks it’s the right way to do it, and we’ve gotta break. We’ve gotta break that.

[00:44:19] Regan Robertson: Hitting autopilot because something is good enough has never sat well with me, and I remember one, one organization I, I, I left many, many, many, many years ago, and it was, but it was a, it was a moment in time where I had a core values alignment discussion before I even knew what the term core value was, but, uh, but we had the leader stand and explain that good enough is good enough. We don’t need to waste any more time or resources on anything just to get it out, and I remember thinking, it’s not you. You can’t hit autopilot. There’s people you know impacted by this, and although I couldn’t articulate it at the time, Ken, I can certainly articulate it now, that that is one of those pivotal moments in life where you take a stand and you define what meaningful to you and not everybody, uh, you know, is the same. People have different core values, and that’s perfectly okay. Mm-hmm. I think today’s conversation helped us uncover some of your core values and, uh, give some great education to our listeners. Thank you, Ken, for all you do in dentistry and for being on the podcast today.

[00:45:25] Ken Kaufman: Of course. Regan, you are an amazing interviewer. Thank you so much. It’s been an absolute pleasure to be here, um, I hope I didn’t chase any of your listeners away, um, but it’s, it’s, it’s been great. Thank you so much for the opportunity.

[00:45:37] Regan Robertson: You are so welcome. What is your website again? How do you spell that out and how do you want people to get ahold of you?

[00:45:44] Ken Kaufman: So, um, we named the company Accrudent. For accrual accounting.

[00:45:50] Regan Robertson: Very clever.

[00:45:51] Ken Kaufman: No, it’s a big, big shocker there, right? Um, it’s A-C-C-R-U-D-E-N T.com accrudent, just like it sounds.

[00:45:59] Regan Robertson: Excellent. Well, thank you so much Ken and thank you listeners for tuning into another episode of Everyday Practices Dental Podcasts.