Supporting Your Future by Building Your Dental Practice (E.140)

“If you don’t know where you’re going then you better enjoy the ride, because you’re never going to get there.”  ~ Victoria Peterson

Do you know where your business is going?

Have you ever been thinking about your business and found these questions chasing themselves around your brain: Should I sell? Should I buy? Can I afford this? Can I retire? Should I hire? Should I expand?

The questions are endless…and the answers are elusive.

Without a final end goal in mind, entrepreneurial dentists like you often end up in a cycle of mental loops around these questions. It will drive you crazy.

So let’s put a stake in the ground.

Today I am taking the guesswork out of your practice and giving you three things you need to know as you build your dental practice into an asset that will support your future, including:

• The 1 question you need to answer
• An easy equation to know what you need to bring in every month
• Why your EBITDA (earnings before interest, taxes, depreciation, and amortization) number should be your driving force

EPISODE TRANSCRIPT

[00:00:00] Announcer: The Productive Dentist Academy Podcast Network.

[00:00:03] Dr. Victoria Peterson: Well, starting from the point that your business is built to do one thing and one thing only, and that is to provide a return on investment for you as well as a lifestyle of your choice. Think about that again. Your business is designed to provide owner profits and lifestyle. Otherwise, seriously, you could sell it and go work as an associate once again, be highly productive, bring home a great paycheck and not have to deal with a headache. So what do we need to do in order to poise this business to provide that one thing to give you your best life today and prepare you to someday walk away financially free?

[00:00:43] Announcer: Welcome to Investment Grade Practices podcast where we believe private practice dentists deserve to get the lifestyle today while building an asset for tomorrow. Join your host Victoria Peterson to design the practice of your dreams. and secure your financial independence. Let’s get started.

[00:01:05] Regan Robertson: Are you tired of working harder every year and it still feels like you’re stuck on a plateau? You know, your practice is doing good, but you know you are capable of more. The problem is not your effort. It’s having a clear plan with action steps you can take immediately. Register for the PDA conference before December 13th and unlock a one-day virtual business planning session with PDA’s CEO, Victoria Peterson, and Dr. Maggie Augustine. In just the last 10 months alone, PDA clients who use these strategies have boosted their collections by an average of 219, 000. Imagine how you will feel knowing your patients are healthier. Your bottom line is healthier and you can feel confident about your future. There’s only 50 spots available and if you miss it, you have to wait another year. The difference between those who wait and those who take action today is a dental practice that has purpose, profit, and a whole lot of peace of mind. Head to productivedentist.com to register before December 13th and set yourself up for growth. We look forward to seeing you in Texas.

[00:02:01] Dr. Victoria Peterson: Today we’re going to focus on asset building. We worked on building a cultural north star. This tells you where you’re going and why. Actually, it tells you why you’re going in that direction today. We’re going to talk about where you’re going. So if you don’t know where you’re going, well, you just better enjoy the ride because you’re never going to get there. Um, there’s some really cool research that put some people inside a round dome building. It had no corners, no doors, no markers, and they asked them to walk in a straight line, and it became physically impossible to do so. So, without a focal point, I suspect that entrepreneurs with no in-game kind of mirror this in their head, you know, these mental circular loops up. Should I buy the building? Should I keep renting or should I just expand my space? Should I hire an associate, get a partner, sell my practice today and work for somebody else? That kind of mental loop can go on and on and on and it’ll drive you seriously crazy as an entrepreneur because we’re also high idea generators. So how do we put a stake in the ground? Well, starting from the point that your business is built to do one thing and one thing only, and that is to provide a return on investment for you, as well as a lifestyle of your choice. Think about that again, your business is designed to provide owner profits and lifestyle. Otherwise, seriously, you could sell it and go work as an associate once again, be highly productive, bring home a great paycheck and not have to deal with a headache. So what do we need to do in order to poise this business to provide that 1 thing to give you your best life today and prepare you to someday walk away financially free and to understand this question? Actually, it’s really simple. All you have to do is honestly answer 1 question. What is your annual personal spending needs. Now forget about the business debt and all the rest.Not business debt.

[00:04:04] Dr. Victoria Peterson: Personally, what do you and your family need to live well? Don’t skimp. Write it all down. The mortgage, the insurances, the taxes. The daycare, the college funding, the private schools, the three vacations a year, your closet of designer clothes, whatever it is, how much are you really spending each and every month? Is it 10, 000? 15, 000? Do I hear 20, Is it 30, 000? Once you know this number and I know this can be scary, particularly if you come home and you’re exhausted, you’re working, you’re fanning off, the last thing you want to do is sit down with a checkbook or a budget and start looking at numbers. We often shy away from numbers in dentistry and without looking at it, though, you build up the skills. Let’s take an example of 15, 000 a month, pretty moderate living for a dentist and your average spending is 180, 000. What would it be like? Remember, we’re in the section of building assets here. What would it be like to build up enough assets so that you got a check for 15, 000 a month every month for the next 30 years without picking up a handpiece?  Now, that might sound crazy to some of you, but this is exactly what I’ve been helping doctors do for the last 30 years. This is proven. I have helped more doctors become financially free than I can even count. They don’t necessarily retire. What happens is they hit that number and they continue to work because it’s fun, because it’s enjoyable, because the pressure’s off. So here’s the quick math. If you needed 15, 000 a month, 180, 000 a year in spending, then you would need to accumulate 5. 4 million in assets. If your current monthly spending is 25, 000, then you need 300, 000 a year in investment income, so you would need to accumulate 9 million. Now there is this piece where you can accelerate your debt reduction, right? Your mortgage goes away. Uh, certainly you want to get rid of all your credit card debt and things like that but even with that said, I would still target these types of numbers because here’s my experience. I paid my house off. What did I do? I bought a vacation home. When I Got that one paid off. What did I do? I bought an investment property.

[00:06:22] Dr. Victoria Peterson: Things, things just tend to go in patterns, what you like, you love, and you keep doing it. So, uh, the spending patterns that I had in my forties are still the spending patterns I have in my sixties and they haven’t varied that much. Even though my economics went up, we do have this pattern comfort level. So I would just find your number. What this does is it gives you power to plan most of us set our annual business growth goals by saying, “I did 1. 2 million this year therefore next year, I don’t know, let’s grow to 1. 3 million.” There’s no rhyme. There’s no reason. The answer is simply more. I want to do more. Next year than I did last year and when we look at our PNLs and our year over year, we go, yay, we did more, but will more get you to where you want to go? And the answer oftentimes is no. In fact, 95 percent of dentists cannot retire and maintain their lifestyle and I venture to say it’s because 95 percent have this, I need more type goal setting. So you want to figure out first and foremost, what is my need and what is my long term asset build? Then you can go in and start thinking about what is the value of my practice. And we cover that in a lot of episodes here. What is really affecting your multiple, your EBITDA, things like that. For many doctors, that’s going to be their number one asset. But if you do it right, and you’re growing at a rate of, gosh, our average client over the last 15 years has grown on average, 27 percent year over year and when we set up our financial freedom calculator and our practice value calculator, we actually set it at about 12 percent because that rate of growth is more than twice what the average dentist grows.

[00:08:14] Dr. Victoria Peterson:So go on, check out the practice value and you can see over the next 5 years, growing your practice using investment grade practice methodologies, how far you will go in just 5 years compare to business as usual. The number one thing that you can do today is to focus on your EBITDA, your net profits and if you’ve not had your CPA organize your chart of accounts so that it’s easy to see all of your spending and then the EBITDA, that’s a financial term. That’s why CPAs don’t always set it up that way. It’s not an accounting term. If you have a chart of accounts and you look at it and you look at your profit and loss and the first thing at the top is advertising and the second one is amortization and then automobile, you know, that it’s organized alphabetically. That may be functional for tax purposes and what your CPA is doing, but it’s not a functioning management document. So, if you want, you can send me your P& L. I’ll take a look at it and I’ll let you know are you set up to manage your practice towards building value based on assets. We want to grow your practice assets and the biggest asset for practice valuation is net cash flow EBITDA and setting up your P& Ls on a great basis will help you month to month to know what’s happening. So that’s where we’re at. With 15 percent EBITDA, meaning you’ve got a 1. 5 million practice and after your salary, you still have 300, 000 in profit. Then you are investment grade. That’s the minimum definition. You have 15 percent in net profits. If you’re 20%, man, is that good. You are going to, uh, get a higher multiple than if you had 15 and if you’re at 22% or above, you are a unicorn and you will get top dollar in your EBITDA.

[00:10:15] Dr. Victoria Peterson:So if you’re sitting there going through your desk and you’ve got an unsolicited offer from a DSO saying, “Hey, I wanna buy your practice,” do not, do not respond to that until you know for sure what your practice is truly worth and if you’d like a free practice valuation, just hit me up at victoria@productivedentist.com. We’ll get you hooked up so that you understand what your practice is really worth today. The extra cash along the way helps you buy the building, helps you pay down debt. It gives you the leeway to offer in house patient financing where you can charge interest and start monetizing your accounts receivables. It becomes an asset rather than a liability. Maybe you want to open a lab within your practice. Maybe you want to open an assisting school. All of these new assets can be created from the profits along the way. So I’m not saying that on that 1. 5 million, you have 300, 000 in profits, you don’t ever spend it. Of course you do. You’re going to take that money though and let it continue to make money for you rather than spending it on cars, clothes, and jewelry. Let’s put it to work in asset-building ways. That’s our tip for today on building an investment grade practice is think about asset building. Is my practice itself set up as a great asset? Am I taking the profits from that asset to invest in other assets, stocks, bonds, real estate, other businesses? So that when I’m ready to hang up the handpiece, I know what my financial freedom number is, that number where my money will last 30 years, month after month after month without me picking up the handpiece and what are the assets I’m going to build to help me get there. Thanks for joining me. I look forward to chatting with you again next week.

[00:12:01] Announcer: Thank you for tuning into this episode of Investment Grade Practices Podcast. If you find value in this episode, help us spread the word by passing it along to a dental friend, subscribe and give us a like on iTunes or Spotify. Learn more about building your Investment Grade Practice at productivedentist.com today.