Episode 108 – Requested Replay: Dental Practice Transitions

“When you’re planning the right way of doing a transition, you should know your options sooner rather than later. ” ~Kyle Francis

You want to make good decisions. The right decisions. For you.

It’s no secret that consolidation has been happening in the dental industry and as all smart business owners do, you have probably spent a fair amount of time thinking about what your options are for selling your dental practice.

In any industry, 95% of people do things the same and there may not be anything wrong with that but what the best in the industry know, is there’s the breakout 5% that do things a little differently. Which is why I am so excited to have Kyle Francis from Professional Transition Services on with me today to talk about what options you can take advantage of

It’s always better to have time on your side. Begin with the end in mind as we like to say so join me and Kyle as we dig into transition options that will give you the most value for your Investment Grade PracticeTM, including:

• Understanding your future needs and options for selling
• Unique options that drive up the value on your dental business
• Insights on dental industry buying/selling trends

Want to know if you have an Investment Grade PracticeTM? Click here to use the completely free Investment Grade PracticeTM calculator: What’s my IgP Freedom Number?

Want to have a conversation about your Investment Grade PracticeTM? Contact Brent at brent@productivedentist.com.
Never miss an episode! Subscribe to Investment Grade PracticesTM Podcast on iTunes & Spotify.

EPISODE TRANSCRIPT

Victoria Peterson 1:24
Welcome, everyone. This is Victoria Peterson and I am joined by Kyle Francis. I am one of your biggest fans. Kyle, I am so glad that we discovered professional transition services. Thank you for joining me on Investment Grade Practices today.

Kyle Francis 1:39
It’s my pleasure. It’s been great to get to know you all as well.

Victoria Peterson 1:44
You know, I’ve been in dentistry for a long time, been a consultant for a long time, I’ve worked with a lot of transition brokers and strategists and I think in every field, there’s the 95% that do it a certain way, you know, whether you’re a dentist or an accountant or consultant, and then there’s that breakout 5% that do things a little bit differently and at the point that David Porritt, and I reached out to you and started talking to you, we were seriously contemplating doing something foolish, like creating your own transition program because the 95% just weren’t providing that extra piece that you provided and I’d love for you to share with our audience today. What is your philosophy about helping doctors? Help us understand who professional transition strategies are and your philosophy of doing business.

Kyle Francis 2:36
I would love to. Well, if I can return the compliment, I feel the exact same way about consultants as well

Victoria Peterson 2:44
Are you the one that said, “Consultants make the value go down?”

Kyle Francis 2:52
Oh, no. Like it’s, it really is interesting, because it is a 95 five rule completely and so it’s as flattering that you said that about my company, but I really do feel the same about shell so anyway, whenever we think about, you know, the right way of doing a transition, I think that the options are key, right, and that the doctor should understand those options sooner rather than later, right. I mean, it’s a simple concept, just beginning with the end in mind, right, which is, it’s always better to have time on your side whenever you’re contemplating these different things and so, whether it is bringing on a partner or bringing on an associate or bringing on a financial partner, right or I mean potentially even considering, you know, affiliation or partnership with the DSO, all those different things can be within the grasp of a doctor, it just, they need to understand what the ins and outs end up looking like, right and so if I kind of live out what I’m really passionate about, which is going to be helping doctors make a really good decision for their life going forward, my thought is, is I want to start with all the information about the practice and so I think that starts with, you know, getting an appraisal done and so that way we understand what we’re working with, and then we can start to talk through, “Okay, what is the right way of thinking about this going forward?” So, and I say this, all the doctors gonna work with the look, “I’m not going to be living it right, I’m not going to be living it with them after that transition” and so my thought is, if we can set them up with the right types of options to start out with, they’ll make the right decision for them at that point so anyway, that’s kind of what our theory is anyway.

Victoria Peterson 4:28
Well, I want to put a highlight on that. I see very few brokers who talk about options, what I hear in the mainstream narrative is, you’re ready to sell your practice, and I will find you a buyer. It’s very transactional. It’s very, almost like a real estate-based mentality and I’ve heard a lot of it, and there are great, I’m not throwing anybody under the bus here. There are great Transition Specialists outside your company but what do you do, you do things a little differently, and this option is one, one of the things you taught me is, “You’ve got great practice, you should host beauty contests like why would you take the first offer that comes along? You spent 20 years or 30 years of your blood, sweat, and tears, I can get you multiple offers.” How do you get doctors multiple offers on their practice?

Kyle Francis 5:18
Yeah, well, so look, this is not a new concept, right? So consolidation has been happening for you know, the last 15 years or so within the dental world, and really is heated up over the last 10 extremely heated up in the last five and if you think about it, the way that we’ve thought about transitions over the course of the last 15 years, just start out with was going to be originally my very first deal, I had one option for that doctor, which is going to be at some point or another, they’re either going to sell all or part of their practice to another dentist, right. Not the worst thing in the world, by the way, right, that can be a good transition way or a good way of thinking about transitions. However, with the advent of private equity investment into this space, essentially what it has done is it opened up all sorts of different avenues for that doctor to consider. Yes, there are still individual options to consider, right, whether you want to sell all or part of a practice to an individual but you can sell all of a practice to a DSO, you might do a joint venture with them, you might want to have you know, take some chips off of the table and roll some equity in with them and go into an equity platform that ends up running a lot more smoothly, de-risking yourself at the exact same time growing faster than what you can currently do. So, I would also say competition has been driving this a fair amount as well, you know, at this point, there are now more than 350 different DSOs out there and what that means is going to be there’s, you know, 350 different ways of skinning the cat, right? I typically think about groups and DSOs. I don’t consider them good or bad. I essentially consider them a reflection of dentistry, right. I think there are good and bad clinicians out there and I think there are good and bad DSOs out there, right, and my goal is going to be that help doctors make a really good decision on which direction they want to go.

Kyle Francis 7:16
Hopefully, the best DSOs end up winning, right, and that way we can, you know, keep the doctor-patient relationship, you know, at the chair side rather than a numbers guy like me dictating those decisions for the doctors so anyway, that’s that, again, that’s kind of what my thought is but look, you asked me a specific question, how do we end up getting is part of his competition, right? So understanding that if we put it out to all of the different groups and all the different individuals, there will be a bidding process on it right, and it’s the exact same thing as if somebody ends up sending you a letter to wanting to purchase your home. The chances are, you’re not going to be selling it for the top dollar if you just deal with that one individual person, right. If you take it out to the market, what you will end up seeing is going to be the practice or the purchase price will be levered up, right just because of just kind of simple supply and demand, right? Yeah because of the consolidation, and because of the competition, what we found is going to be it’s actually pretty easy to drive the price point up to what we believe the market price should be on that practice so yeah,

Victoria Peterson 8:28
How many practices a year do you look at does your team value?

Kyle Francis 8:32
Yeah, so this year we’ll do somewhere in the 500 to 600 range.

Victoria Peterson 8:37
Ah, well, so you’re looking at 500 potential practices a year? and how many? How many do you take to market and collect? Some people just aren’t ready, right? Sometimes you look at it and say, Give us another year or two, sometimes much, though. They’re past their prime while you should have found me a year or two ago so what do you think is, when, when you hit that sweet spot, and you go, wow, this is going to be really fruitful, what is the doctor doing to prepare and how long you said, give yourself time, it’s better to have time on your side, what does that mean?

Kyle Francis 9:14
Well, okay, so firstly, the answer, your first question is, you know, something around the 250 mark is about how many will end up taking to market of which I would expect, you know, somewhere around half of them to end up actually finding the right deal and closing, right, so maybe call it 150, this year, something like that. So, in terms of having time on your side, this is my thought process, at some point or another, I’m going to sell this company that I started, right, whenever I do so I’m very hopeful that I’ll be able to listen to my own advice. Have somebody take this business out to market because there’s this funny thing out there called founder’s syndrome. Are you familiar with that concept at all? Okay. Yeah so founder’s syndrome was kind of crazy so I just lived it with my dad who just sold his last company, right and so, you know, you start up something or you bought something, and it really kind of becomes kind of like a member of the family to you, in a way, right. There’s all these kind of emotional heartstring things and ended up being ingrained in it and it’s really hard to see the forest through the trees, whenever there’s all those heartstrings kind of tied up in an economic decision so what my thought is, is that one, we can kind of help see through those, those different, you know, emotions, and then we also are able to help them end up kind of looking at it, you know, purely from a nuts and bolts standpoint, which is going to be okay, we have this asset, right, which is going to be let’s say you have a million or $2 million practice. That million or $2 million practice, how is it operating right now, right? So do we have costs under control? Is it kind of humming the way we want it to hum?

Kyle Francis 10:56
And then we say, “Okay, does it make sense to evaluate what types of options you have in terms of a transaction, right? How much longe are you wanting to continue to work? Is it three years? Is it five years? Is it 10, right?” and then what we can do is we can compare apples to apples, right, which is we put together a scorecard that essentially breaks down their total financial outcome if they end up thinking about transacting with one of the individuals or groups and then what happens if you just keep on rocking it by yourself? Right? Because that’s still a completely totally viable option, right aand then finally, does it make sense to do some work on the practice before you end up bringing it to market, right? We ended up having the conversation quite often that says, “Okay, well, you know, your lab and supplies are out of control, looks like your payroll is just as much, so, so if we end up bringing it to market, somebody is going to be giving you a lower offer than what you could get potentially in the next year or two if you do the work on the practice.” Now, does that mean that you end up raising revenue in order to make it commensurate with the cost structure? Does that mean that you need to cut some costs? Look, we can give advice on that kind of stuff. We’re not the implementation experts, that’s where y’all come in, right, but anyway, that’s, I think that you know, having that type of conversation is a valuable one because if you have it sooner rather than later, you aren’t just stuck, you know, saying hey, “I want to sell my practice in the next six months.” At that point, it does just become a transaction.

Victoria Peterson 12:25
Yeah and gosh, this is so rich, you bring up so many great points here. Every week, my team and I have conversations with our clients that say, “What is your cash flow need in retirement? What is, you know what, what will you need to be ready for the 30 years after you hang up the handpiece, and even if you’re 70 and you don’t think you’re gonna live to 100 let’s think about what would the next 30 years look like,” and we help them get to that, you know, financial freedom number that infinity number where your money is going to outlive you and you’ve got something to pass along or spend it all now but you know, this piece about beginning with the end in mind knowing where I could be or want to be in five years knowing as you said, “Should I buy sell or hold on?” An interview we did recently with our client, Clint Euse, he and I were going through this, he said, “I got an unsolicited offer,” and it was a pretty darn good offer. “What should I do?” We walk through it and put it into our financial freedom calculator like your practice historically is growing like this, do you think it’s going to still grow like this? “Absolutely, We’re expanding blah, blah, blah”, and I said, so if you sold to a DSO, this is how it’s going to grow because they’re not about growth, they’re about maintaining cash flow so maybe you won’t expand, maybe this will happen, that will happen. This is what the buyout can look like,” and he goes, “Well, okay, well, that’s still not a bad deal but what are they going to bring to the table, I’ve got a great office manager. She’s aligned with my vision. I work, I work Tuesday, Wednesday, and every other Thursday. My wife is in the practice, she works Monday, Thursday and every other Friday, like, like we’re cheering, we’re working two and a half days a week, we got an office manager, we’re expanding, cash flow is great. What would they bring to us that we don’t already have, right?” and I said, “Exactly,” and he goes, “Well, I’m 44 years old, is it okay, if I just keep doing this for the next 15 years?” and I said, “Sure.”

Victoria Peterson 14:30
You know, really, what you don’t know when you get that letter in the mail, you know, and I love that you compare that if you got a letter in the mail, because I get them all the time, we’re looking for houses in your neighborhood to sell like, “You’re crazy. I’m not selling my house,” but we get those letters for our business and sometimes panic sets in like, maybe I should and right, this is so good. I love that you take such a methodical approach to it. I love the concept of the scorecard that includes, where do you want to be emotional? What else is going on in your life? What are your values? Where do you need to be financially, really pulling together more than just you got five operatories 3000 patient records and this EBITA, therefore, your practice is worth that? I’ll come out and take a few photos and we’ll throw it on the market.

Kyle Francis 15:23
Right? Well, I mean, quite frankly, I’m just not very intellectually stimulated either, right? Whenever you think about it that way, it was just a kind of boring type of deal but it’s so so maybe the follow-through of what you’re talking about with the letter. I remember early on in my career, I was asked to speak at a couple of different dental schools, and about just kind of how to buy a practice, right so what I’m seeing out there, those kinds of things and one of the pieces of advice that I used to give was going to look, if you want to go to a certain place, you know, a really smart thing to do, if I were in your shoes, what I would do is I would send out a whole bunch of letters right. I would just send out letters like crazy and see if you can get a bite and the reason being is twofold. One, you’ll have options, right, and the thing two is most likely you’re gonna get a good deal, right. If you end up doing that, because you’re kind of usurping the market in a way, right and so whenever you think about the DSOs going out, and you know, sending out letters and communications directly to doctors, they’re just taking that strategy, which by the way, is in their best interest, right? and they should, if you, if you’re thinking about buying something, you want to buy it for as low for as less as you can, right and if you have to compete, then you have to compete, right but essentially, whenever I think about the types of processes that we run, I know for sure that the other practices that that group has bought, you know, on their own, are helping fund my transaction, right? I know for sure they are right and so and that’s, and that’s a good thing for the clients that we have and look, here’s the thing is that like the other, the other doctors didn’t get a good deal or a deal that they wanted or anything like that, but the chances that they were able to make the market on it but that you know, that group has done that 100 times, and you’ve now sold your first practice, right? It’s just a little bit of a different type of agency there.

Victoria Peterson 17:07
And you know, that’s one of the things we’re doing with our IGP platform and, and teaching doctors how to become investment grade. There’s a difference between business value and cash flow. There’s a difference between lifestyle and decreasing stress and all that we love all of that but that’s in this box called practice optimization, that’s in a box called culture, index marketing, all of those things. You’re bringing in this fourth box of there are new market influences that you don’t even know about, that are creating value that you could take advantage of and I want to talk about that for a minute because explaining this to our coaches and explain it to some of our clients. I said, “Have you ever traveled to a foreign country, a new experience where the dollar is worth, you know, 1.5 yen or 1.3 pesos or you know, it’s worth more or less so think about currencies. It changed value because you crossed a border,” and so we’ll go back to the equity platform. You talked about that, that’s something that we’re working on with you to help like-minded dentists come together because in the new vocabulary of buying and selling, it is about EBITA, is about multiple EBITA and it creates this equity arbitrage in this currency exchange, if you will, it’s more valuable in one place than it is another so can you talk about equity platforms and how that changes the value for a doctor?

Kyle Francis 18:47
Okay, so first of all, I’m definitely stealing that currency exchange. I have not heard it talked about that way and that’s good. That’s really, really good. So, okay, so whenever I think

Victoria Peterson 18:58
I just gotta like, fan girl on you here for a minute

Kyle Francis 19:03
That was good. That was really good. Okay so typically, whenever I think about equity arbitrage, okay, so 15 years ago, people didn’t doctors didn’t have this option, right? So 15 years from now, we’re going to be consolidated and also won’t have this option. So I think about it like,

Victoria Peterson 19:17
So this is a special window of time.

Kyle Francis 19:18
It is it’s very unique, right? So it’s the exact same thing that happened in the 1980s, with medical practices, right and so if you look at the type of consolidations happening, they’re just not the same, right and the reason it’s taken so much longer than dentistry is going to be because dentistry is very, very, very hard to consolidate. You got all these Mom and Pop dentists out there, you didn’t have these, like huge orthopedic groups that like, you know, we’re in Colorado Springs, there were two oral, oral, not oral, orthopedic groups out there, right so if I look at it this way, I think of equity arbitrage in terms of risk and in terms of reward so from a risk standpoint, let’s say the practice is kind of like an apple stock, right? Apple stock grows really nicely and provides a really nice return for anybody who holds it, however, is still inherently risky, right? The risk is going to be that you’re still betting on one company, right? So whenever you think about diversifying risk, you think about buying a mutual fund, right? A mutual fund is great, and provides a nice return, however, typically not as high as the potential return of owning that singular stock, right? If you look at the original DSO deals out there, essentially are kind of all the old school ones, all of them had this kind of characteristic to it, which is going to be I’m diversifying my risk, I’m taking chips off the table, maybe I can put a little bit of equity into this vehicle but primarily, I’m just diversifying risk here, right and that can be a good way of thinking about like the older style deals and we still have people that choose that type of deal as well, by the way. Now, what happens during consolidation or during competition, it’s claimed to be essentially more carrots get thrown in, right and so instead of just diversifying your risk, now you can put large chunks of equity into those types of platforms, or only sell a certain percentage of your practice and have the other percentage that you have to be worth way more like your currency exchange idea, right and essentially, what it does is it allows the doctor to be a private equity investor within either their own practice or within a group of practices, which again, is a lot less risky, right? So if it grows faster, and provides less risk, man, you could be cooking with gas, right so we see a lot of dramatic outcomes from that type of thinking.

Victoria Peterson 21:36
You, I think, yeah, you’re in the, and like you said, in the original versions, you know, groups and private equity and DSOs, they were kind of aggregated around geography, you would see them kind of locusts in an area, right and Wisconsin is a great example of that. It’s probably one of the first DSO areas and they’ve got cherries and apples and mids and everything is out there and that was my competition, when, that was actually why when I started buying practices from solo doctors, they were like, “You’re not a big DSO therefore, I like you didn’t figure it out.” I was not a dentist, I was a hygienist and they were like, “What the heck, I just sold my practice to a hygienist.” There was like some, I don’t know, there was some OG stuff going on there and they were like, I can’t believe this so that was kind of fun but what I’m hearing you say is that geography is not necessarily needed to be on an equity platform. What I need is a group of like-minded people, let’s say that clinically, your clinical ethos, so this thing like I’m a general dentist who loves comprehensive care, and you’ve got a philosophy of care, and that’s all kind of standard and congruent across everybody that’s on the platform. The accounting is the same so that everything’s normalized, and you don’t have to get a high highlighter and Sharpie marker just to figure out what your profit is each month. hiring practices, culture, things like that so you can align in that way so that when a private equity investor, so this is a different type of buyer persona, you’re, I want to sell to an individual Doctor looking for a lifestyle, I’m selling to an investor looking for cash flow on a product essentially, so you want that 10 or 20 practices to look at feel similar, but they don’t have to be exactly the same Stepford wife robotic. Am I hearing you? Right? Yeah,

Kyle Francis 23:43
Yeah, very much so I guess, look, what we what we’re looking for are going to be what ties do we have, right? What are the different ties within that, you know, organization or group or whatever else? Some of those ties could be geographic, right? So I mean, geography does matter in some way, shape, or form and so, you know, if you band together, you know, practices from a geographic standpoint, do you get to benefit from a marketing standpoint, or from you know, potentially regional managers, it’s easier to put regional managers in that type of platform so there are reasons to consider geography, but I would also say there’s, you know, plenty of groups out there that have done very, very well being completely and totally geographically agnostic, right, they’re going around and looking for the right type of practice, the right type of practitioner, right and if they end up finding those types of practices and practitioners, will they go to Alaska? Sure. You know, will they go to Maine? Absolutely. No big deal. You know, and maybe it’s the same group going both those directions, you know, so anyway, I think it’s all about ties and story so yes, you know, whether it’s, you know, a clinical ethos, whether it’s going to be, you know, type of practice that you like to run, whether it’s going to be, you know, the payer mix that is going to be kind of standardized, or whether it’s going to be, you know, all of these practices really, really love doing all on four cases, right, or whatever the case is. So there are lots of different types that you can get and I think the key is going to be how can you tell a story around those ties in order to make the right decision going forward.

Victoria Peterson 25:08
Okay, let’s put an example in here so that listeners that may be thinking about selling in the next two to five years, or heck, maybe even next year, but somewhere in the next seven years, this is in their future, if I had a let’s call it a $1.2 million practice and I had about 20%, net profit EBITA, so I’m pulling down 240,000, what might my practice be valued? Just ballparking today, and I know I’m giving you only one data point, what would it be worth today, to compare two, if that same practice, came together with other like-minded and created an equity platform? Show us what equity arbitrage really means, and show us what this currency exchange really looks like.

Kyle Francis 25:56
Yeah, so let’s, let’s start at the beginning, which is gonna be let’s say that, that practice is sold to an individual, right, if that practice is sold to an individual, you know, you take the typical rule of thumb, which is we call it 75%, of, you know, total collections, those kinds of things and suddenly, you’re looking at something that looks more like, you know, the $900,000 range, right. So that’s the old way of doing it again, if there’s $900,000 sitting on the ground, most people are going to pick it up, right? If you ended up going with, you know, what I would consider, you know, a private equity-backed group in some way, shape, or form, whether it’s directly to private equity, or to the private equity-backed organization, let’s say you go directly with them, you know, or maybe you hire a company like mine to take you out to the market and to kind of show you what those options could look like, you know, typically we’re going to be looking somewhere around, you know, call it, you know, five, six times type of deal, right? Six times type of deal to under $40,000 times six, you end up looking at call like 1.4 million, something like that again, so if you look at the difference

Victoria Peterson 26:56
That is an extra 500,000, I like that.

Kyle Francis 26:57
Yeah, the Delta there is nice, right? So I mean, like, we have a lot of folks that end up making those types of decisions, and it works out very, very nicely for them. Now, here’s the thing, though it’s not just picking up the additional 500, $600,000, the real thing is gonna be what can you do with that equity, right so if you end up taking call it a million dollars off the table, and you still have $600,000 worth of practice value, what you can do is you can reinvest in their platform or potentially keep a percentage of your own practice, right and now that percentage that you kept, or that percentage that you’ve rolled forward, grows enormously faster than what you would experience otherwise. Your typical equity platforms grow., it’s something like 80% year on year, right? So over the course of a five-year time horizon, it multiplies by five, takes that $600,000, multiplies it by five, you know, $3 million, adding that the million dollars, just got day one, we’ve just taken your asset that was worth $900,000 in a different environment and change it to a to an asset that’s now worth 4 million, right? That’s obviously an enormous deal. Now let’s put on steroids, right? So we put it on steroids, the way we do that is going to be you know if we ended up kind of maybe binding together like-minded dentists, right, and we ended up bringing together you know, 10, 20, 30 practices simultaneously. It’s worth way more to a private equity group. The reason being is they don’t have to go around and pick off each one individually. Takes a lot of time, effort, and energy to do that and time is the biggest thing. They only have use of those funds for like a five-year time horizon. They need to be efficient with their time in order to make this work so if you bout bind together, like-minded practices, the total outcome can end up being instead of like a six times deal to start out with, you can get a nine or a 10 times deal to start out with. Now, again, what we did, you take that two-point or two and $40,000, that, let’s call it Pat times 10 so you don’t have $2.4 million, that

Victoria Peterson 28:54
Instead of 1.4,

Kyle Francis 28:55
Instead of 1.4. Yep. So,

Victoria Peterson 28:55
Just because I said, “Kyle, you and I get along, why don’t we sell together or be on a similar plan together, that’s all we have to do is say, I like you, you like me, we work together nicely but you’re not going to come and tell me what to do and I’m not going to come and tell you what to do but we’re on the same platform together so there’s value in the collaboration,” there’s value and the agreement of standards, so you don’t have to scale your individual practice 10 times, you join others, and you scale together.

Kyle Francis 29:30
There you go. Yep and then now the coolest part about this is gonna be let’s say you take the exact same amount off the table, they want you to take that million dollars off the table, they want you to have $1.4 million in that new equity platform, right? Every platform grows by five times, right and suddenly, you’re looking at something that is going to be worth, you know, 7 million over that same time rise, and you take that initial million, so we now have an $8 million deal, that essentially all we could have gotten before this consolidation event was going to be just under a million dollars, So look, this is not a unicorn type of story. I’ve seen it a lot, right, you know, 40 to 50, transactions on foot politics, I’ve seen it a bunch and so my thought is, is it worthwhile to at least consider? I think the answer is yes right and so does that mean that you end up choosing that way? No, absolutely not. One of my favorite stories, if you have a minute is going to be I worked with a pediatric dentist in Georgia, a really, really nice practice $2.6 million, and a single provider so he’s flipping it, right, he’s going, and we have all sorts of really good offers from DSOs. Right? and really, whenever you looked at everything’s like, yeah, you know, that’s not really what I want. I just want somebody to live life with, you know, and so we ended up finding an individual doctor from Washington in order to move them across the country, and he didn’t buy into that practice, you know, what we consider this market, a market rate and here’s the thing, the guy whose sole didn’t make the wrong decision. Right, he made the right decision, and he made the right decision for him. Now is there was were there more financially consequential types of things that he could have been? Absolutely, but that’s not what he was looking for so my thought is that, again, if you have the full gamut to choose from, it’ll make the right decision more apparent.

Victoria Peterson 31:18
You know, I think that’s paramount too because we brought David Porrit, who has been a great friend of mine, and Bruce’s for many, many years and in his Ph.D. study of and I think it’s the only study that’s out there right now, but he spent six years studying DSOs consolidation but the specific point of view is, what was the career satisfaction for young dentists going in as associates and for doctors who were selling into, and really, it came down to core value alignment are my values aligned with your values and I think it’s beyond justifying that you say I want to align with something that aligns with me, I want to preserve the legacy here, I want to have resources for the community that is ongoing in this particular way and so money is not always that factor but what I love about this so much if I heard you correctly, is that as a practice owner, I don’t have to work any more days. I don’t have to hustle my bustle, there are probably some things that I can optimize but literally when I understand this new framework, that’s here for a window of time, I can understand that there are financial, I call it magic. There’s just banking magic, and currency exchange magic because I went to Tijuana, my money is worth more. You go from solo practitioner to platform, then my value could go from 900,000 to 8 million over time. That’s, that’s building generational wealth, clearly, right? That’s, that’s making sure your kids’ kids are taken care of because that’s beyond taking sweat equity out of your practice, and I’m so glad that’s here. How long do you think this window is gonna stay open?

Kyle Francis 33:14
So yeah, so right now we’re about 30% consolidated as an industry, you know, there’s a little bit of variance there. Some people are saying more, you know, under 30%. Some people are saying 35% I’ll call them middle, right, so 30% consolidated. There’s a lot of really good research out there that shows that we’re going to get to something like 60 to 70% consolidated and there are a lot of comps for that as well, but the speed at which we go has ramped up, right and so what I would say is, you know, maybe a seven-year time horizon, right, which is going to be something like, you know, a turn and a half or two turns of private equity is about what we have remaining and I think from there, we’ll be in stasis, which again, it’s not a bad thing to own a piece of the DSO or a piece of your practice after that point. It’s not like it’s going to be a bad thing but is it going to be as dramatic of an exit? No, there won’t be at that point, you know, so.

Victoria Peterson 34:12
It becomes predictable

Kyle Francis 34:13
Yeah, exactly, completely so dentistry is an extraordinarily predictable thing, which is why private equity is interested in it, right? So if you think about, I, often I will teach private equity funds, how to invest in an industry and why to, and one of the things we’re talking about is going to look, “If, if the dentist tells somebody to brush their teeth, and they don’t, what are they gonna get, they’re gonna get a cavity, right? If they don’t get the cavity filled, they’re going to end up needing a crown, if they don’t get the crown done, they’re gonna need Endo, they don’t have to get the endo done, they’re gonna need to have the tooth pulled and if they don’t have it, if they want to have any sort of function, you’d have to get a bridge, or you have to get an implant going forward, right? and each thing is that becoming more and more and more expensive, right? Not only that but also what are the chances that that patient is going to take out pliers and pull off and pull out their own tooth, right? It’s probably not going to happen, right?” So they like that recurring revenue, right? And it can be a very, very safe investment going forward. It’s just interesting that right now we’re in that place where the platforms themselves are the things creating the value just because of the scale, right, and is it an eventuality, that it goes back to more of that safe investment right now it grows very, very fast. Yeah.

Victoria Peterson 35:21
Well, thank you for being part of our education team and helping us build the IGP platform, because I think we’ve worked with so many amazing dentists over time that looking back they go, Wow, I think I built an Investment Grade Practice, you know, it, it runs like clockwork, it’s got great cashflow. You know, how and now I’m struggling? Do I sell all or part of my associate? What does that look like? I’m not ready to retire, what do I do? So that’s what we’re going to be doing in September, I am so thrilled that you’re going to be there as one of our speakers on faculty with us. a full panel discussion, we’re talking transitions, we’ve got CPAs and accounting and what we’re doing on the tax side of the equation, we haven’t even touched that today. Our good friend, Chris Sands will be there for that. We’ve got our friends from Dentists Advisors, you know, talking about what is your financial freedom number, and should you do a 401k and or double down and your practice and all of those kinds of it’s very complex and I’ll say, you know, since I came into dentistry, I won’t even tell you when, the options are bigger, and your board of advisors must be better. You know, my uncle is a CPA, may not get you there, my neighbor’s kid, as a graphic designer, it’s not going to get you there and I just think that that’s my passion, that’s my mission is to level the playing field for solo private practitioners who really deserve all the benefits that are happening with these bigger groups, because it’s not unavailable. It’s a matter of education and understanding the risk and understanding how to minimize that risk through smart decision-making and it’s not. It’s less difficult today than it was in 2011. When I was starting a group, there was very little information out it was hard, it was behind closed doors, couldn’t get to people, like you know, really,

Kyle Francis 37:24
I mean at that point, we didn’t even know what a DSO was really, you know, I mean, like, I remember the practices that we called them umbrella corporations, right, the umbrellas. All those things and so

Victoria Peterson 37:38
They are called the corporates,

Kyle Francis 37:38
Yeah, pretty much so yeah, it is, is that the world has changed a lot in the last 10 years.

Victoria Peterson 37:43
Oh, Kyle, this has been a delight. I know that. Well, I’m going to have you back for round two and round three, and round four. As the seasons of this podcast continue, you are a treasure of information and I make I’m really thankful that you made it so accessible and new, with such great imagery to help us understand what all of this means.

Kyle Francis 38:02
Well, it was my pleasure. I love our conversations, and I can’t wait to have more of them.

Victoria Peterson 38:07
I love it. We’re gonna put your contact information in our show notes, but is there a particular way that people can reach out to get more information?

Kyle Francis 38:14
By all means, go to professionaltransition.com We’ll have all of our contact information there you can find us on you know, Facebook and all different social media, all that kind of stuff so I think the easiest way is by just going to the website.

Victoria Peterson 38:28
Perfect. Yep. Have a wonderful day, Kyle.

Kyle Francis 38:29
Thanks, you too.