He Bought 80+ Offices

0:01Dr. Jim Arnold My guest today is Matt Morenstein. Matt's the owner of Oak Dental Partners, co-founder and co-CEO of Dental Pitch Brokerage, co-founder and co-CEO of Fortum Holdings, and CEO of the Ornstein Schuler Companies. He's doing a lot of stuff. And over the past two decades, he's built and acquired and operated businesses across dentistry, real estate, private equity, and probably a few other areas. But in dentistry alone, he's helped build one of the country's largest regional dental groups while also overseeing. Hundreds of millions of dollars in enterprise value creation. Today he brings that same operator's perspective and buyer's mindset to the seller's side of the table through dental pitch brokerage. He helps practice owners better understand value transactions, what buyers are really looking for. And he's written a couple of great books that I think are really awesome educational pieces for doctors and other industry people. So, Matt, welcome to the Foundation Dental Podcast.

0:55Matt Ornstein Thanks, Jim. Pleasure to be here.

0:57Dr. Jim Arnold Yeah, man. You know, we haven't had much chance to talk over the past year, but I've been following everything you do, especially since you guys started dental pitch and I'm I'm just really impressed. I'm really grateful, you know, because I think you're doing a lot of good for the industry.

1:11Matt Ornstein Thank you. Thank you. I really appreciate that. And that's our goal at dental pitch advisory and brokerage to help people.

1:21Dr. Jim Arnold I love it. I love it. So I mean, obviously through acquisitions with your your dental group over the years and now with dental pitch and everything, you've seen the inside of a lot of practices, probably hundreds of practices if I would guess. And if you walked into dental offices tomorrow, like like say 10 dental offices tomorrow, how many of them do you think are actually like ready to sell?

1:44Matt Ornstein well when you say ready to sell, meaning they wanna sell or if they wanted to sell or ready to sell.

1:48Dr. Jim Arnold No yeah, like if they wanted to go to market, like how many practices, like what percentage do you think are actually ready?

1:57Matt Ornstein gosh, that's a that's an interesting question. I don't I don't know. probably half and the other half probably have a bunch of things they need to get in order before they go to market.

2:12Dr. Jim Arnold I know you guys have a team that kind of helps them with that. You know, like if they come to you, they're like ready to go or they think they're ready to go. And you guys, you know, pull back the curtain and look things and look things over and realize, my God, you're leaving a lot, you know, leaving a lot of value on the table. What you know, what are some of those things that you guys find that you know, you advise them on, you know, improving before they actually do go to market?

2:36Matt Ornstein Yeah, that's a great, a great question. you know, we look at a lot of things and gosh, probably half of the practices or groups that reach out to dental pitch brokerage, we end up being an advisory arm for them, at no cost, by the way, to get they get their house of cards in order. So when they do sell, they're not leaving, you know, potentially millions of dollars on the table. You know, there are lot of things that practices or groups are doing that can be cleaned up in, you know, six to twelve months. They may have, you know, huge outstanding accounts receivables that are not being collected, which is gonna really, really damage the exit valuation. a lot of offices, believe it or not, are not really optimizing chair time. And the number of chairs that they have, right? They may need to bring in an associate doctor, you know, to to improve patient care and quality of care and increase increase revenues. you know, their practice management system might be a might be a mess and not one that the top buyers are using, you know, so it creates a little bit of an integration headache.

3:42Dr. Jim Arnold Yeah. Yeah.

4:05Matt Ornstein what else? you know, a lot, you know, organic growth, right? They may be negative organic growth. And when you look, you know, you kind of peel the onion back, you find out that they're just not they're not they don't use have a proper marketing campaign. And that all that can be fixed with a a great marketing company, and just you know, improving your new patient count, you know, each month.

4:08Dr. Jim Arnold Yeah. Mm-hmm. Yeah, you know, isn't it crazy? I mean, I think that most dentists wait too long. You know, they they get to the point where, my God, I'm I'm ready to go. Like I I need to sell now and I wanna walk away. And, you know, what what's the best advice you can give to dentists? You when there's thinking, man, you know, gosh, I I might want to get out of this at some point.

4:51Matt Ornstein I think that's a an incredibly brilliant question. And I'm gonna tell you the answer to that because I've seen this unfold in unfortunate ways many, many times. If you are thinking about selling your practice or your group, you really want to sell it f I would say five years before you've headed to burnout. Because I've seen a lot of doctors literally get to the point mentally, emotionally, and physically where they just can't work anymore.

5:12Dr. Jim Arnold Yeah.

5:20Matt Ornstein You know, and they'll come and say, Hey, I want to sell this, but I will not stay on. I want to sell it and I'm out and I don't have, you know, and I'm a huge percentage of the annual production, but I'm not staying on a day post closing. You're you're gonna get a fraction of the value because any legitimate buyer is gonna want the selling doctor to stay on, typically for three years, you know, at least three years. And they're gonna hold you accountable to

5:31Dr. Jim Arnold Yeah. Yeah. Absolutely. Yeah, I mean

5:49Matt Ornstein Buyers these days are not gonna they I'm making a number up here. EBIT is a million, they all right, we'll pay you seven million for your practice. That buyer's gonna hold back a couple million dollars and say, we're holding back two million of the seven million for a period of three years. And if your collections drop below what they were when we bought you, you're not getting that money. Which means if you're the selling doctor, you have to stay in the chair, you have to produce, you have to maintain production.

6:03Dr. Jim Arnold Mm-hmm. You know it's

6:17Matt Ornstein And and hopefully increase production. If you're not willing to do that, it's you're gonna it's gonna cost yourself a lot of money. Unnecessarily.

6:25Dr. Jim Arnold Yeah. It it's it's crazy. you see that all the time. The longer sellers wait, the less leverage they have, you know, because the buyer knows they're they're either in a desperate situation, they just need to get out and they're probably gonna take the first offer. And a disciplined buyer is gonna do everything they can to de-risk a deal. And it's risky when you got a key man, you know, doing all the production or making all the decisions who's the bottleneck, because y you know as well as I knew, if they move to Hawaii or get hit by a bus tomorrow, that practice is worth almost. Nothing. So no, I I agree, Matt. It's like the sooner you start planning for that, the the better because it gives you a chance to obviously sort of decentralize some of the decision making, hopefully share production with other providers and and also clean up some of those things you mentioned. You know, that's why if they go to a group like yours or a group like mine, we can help them fix some of those things that are either broken or just that can be improved. Which gives them a lot more leverage when they come to the table, right?

7:26Matt Ornstein Yeah. I mean, you know, I my main background in in my career has been real estate. and we do have a home building company, but when I was younger in my twenties, I did a lot of fix and flips in the mid nineties. you know, buy a house, fix it up, and flip it. And, you know, I I still see this today. You know, someone wants to sell their house for I'm making a number up, but you know, maybe they want to sell their house for a million dollars. And, you know, the paint is is old, the landscaping is old and tired. you know, they may have light fixtures that are 30 years outdated, old carpet. And if they would just go spend, you know, I'm making a number of $25,000, you know, to to give their house a visual upgrade, you know, they may end up getting an extra two or three hundred thousand dollars on the sales price of their house. So you have to you have to consider you know, the optics of a good of a house. And then a buyer's gonna consider the optics o of a dental practice. Not necessarily just the visual optics, but the operational optics. And you need to clean that stuff up. You gotta have a c you have to have a clean house and you and you'll get a lot of value, extra value by doing so.

8:29Dr. Jim Arnold Yeah. Yeah. Yeah, for sure. You know, even like the numbers. I see practices where, I mean, their P and L's are just a mess. Everything's miscategorized and trying to I mean, it it's tr try it the more you have to try to figure out, the more you worry about, man, what else are they they hiding or what else isn't being managed very well, right?

9:03Matt Ornstein Yeah. Yeah, that's true. And these are multi I mean, these are multi million dollar transactions. So the buyers take this stuff very, very seriously.

9:05Dr. Jim Arnold And and you I think a lot of dentists think that they can go through this process without representation. You know, gosh, I mean we all think of ourselves as intelligent guys or women and you know, we got this and we'll ask all the right questions and stuff. But I'll tell you from experience, I sold my practices eleven years ago and I didn't know what I didn't know, you know. I mean I did have that typical dentist mindset of look at what I built. Like I'm I did it because I'm smart and I work hard and all that sort of thing. Asked a thousand questions, but Matt, I did it without representation and it cost me definitely millions of dollars. And, you know, make having made mistakes like that and seeing other dentists make mistakes like that. You know, I mean, one of my missions over the next twenty years is to make sure that, you know, any dentist that I talk with, you know, whether it's just personally or professionally, I want to make sure they they avoid those mistakes.

9:58Matt Ornstein Yeah, I agree. you know, my thesis on that is as long as you hire a good sell side broker, a really good one, whatever you're gonna pay in a success fee, net net, you're gonna come out substantially ahead. You know, and I j I'm just I'm I'm I'm I'm making this number up, but like if the success fee is a dollar, you know, in in the proper scenario.

10:15Dr. Jim Arnold No no question.

10:24Matt Ornstein a really good broker is going to get you an extra, you know, two or three dollars. So net net, you're still coming out a dollar or two ahead, you know, above and beyond the success fee. You know, one of things that a a major mistake I see dentists oftentimes they don't want to pay for a their own quality of earnings to determine what their real adjusted EBITDA is. And you're getting multiple on your EBITDA, you know, if you have one practice it might be, you know

10:32Dr. Jim Arnold Absolutely. Yeah.

10:53Matt Ornstein $2,500 for a $3,000 for a quality of earnings. If you have multiple practices, it could be $25,000. You know, and I have seen this. I have seen this in the industry where a seller says, Well, my my accountant told me my EBITDA is $500,000. And so, you know, I'll take a 6X on that, $3 million. And the buyer will go in and do their own quality of earnings and actually find out. The really, but it's six hundred thousand dollars. Practice is worth three point six million. The buyer's never gonna tell the seller, you're wrong, your CPA's wrong, you know, by by you know, a hundred thousand dollars or it's it could be a million dollars, right? You know, and it's just crazy. It's like you know, you don't you're like you buy a car these days and you don't want to spend twenty five dollars on a a car fax report to find out if it's been totaled.

11:26Dr. Jim Arnold Right. We're not Yeah. Yeah.

11:53Matt Ornstein I mean, you know, not total, but been in accidents, right? Like what problems has the car had? but I do see that a lot. I I really do. And there have been instances where I have not been able to convince a seller to spend that money on a quality of earnings. And the sellers are well, we'll just rely on the buyer's quality of earnings. And the buyers never ne the only time a buyer will share their quality of earnings with a seller is if the buyer's quality or earnings comes in lower.

11:53Dr. Jim Arnold It's really Sure. Yeah. Boy, boy. Yeah.

12:21Matt Ornstein than what the seller thinks their EBIT is.

12:24Dr. Jim Arnold Absolutely. Boy, you know, if you if you do that, you're really putting all the ammo in their hands. And that's why I think that sellers, it's so important to have somebody by their side who is going to be proactive. You know, like look, when we find issues, we can help either help them fix them or we bring that to the negotiating table as an opportunity for the buyer, as opposed to having to be reactive. You know, as if, you know, and you as a somebody who's bought a lot of practices, you see that. And so you bring that. perspective from the buyer side to the sellers. And that makes you a better advocate for them. And I feel the same way. You know, my partner and I have both bought and sold and been on, you know, corporate transactions and personal transactions. And, you know, the the more you see, I think the better you can represent people for sure. So, you know, in when you look at the industry kind of as a whole though, what what kinds of things do you think that, you know, most dentists are just kind of missing out on or haven't figured out yet?

13:21Matt Ornstein I would say that's a that's another great you're asking really great questions. you know, there's a difference between market share, which is a percentage of customers customers that you are able to obtain in your market, and wallet share. And wallet share is, you know, make this up. Let's say you have 10% of all the dental patients in your area. So you have 10% market share, but if you're referring out a lot of work.

13:36Dr. Jim Arnold Mm-hmm.

13:49Matt Ornstein You know, you're not you you're not doing root canals, you're not doing implants, you're not doing crowns, you're not doing ortho, and you're referring that out. Your patients are opening up their wallet and giving that money to someone else. So you're losing wallet share. So, you know, I see a lot of doctors that refer a lot of stuff out. And I am like, you're referring out a million, two million dollars a year of stuff.

14:04Dr. Jim Arnold Mm-hmm.

14:19Matt Ornstein Why don't you just go learn how to do that? There are courses on implantology. There are courses on, you know, veneers. There are courses on on crowns, et cetera. And you're referring it out. So my you know, man, I don't want to I don't want to refer the that those revenues out. So I do see that all the time though. Like, and even if you don't want to take the time to do it, hire a doctor that does know how to do that. Bring them in. Don't refer it out. Yeah.

14:23Dr. Jim Arnold Yeah. Absolutely. Yeah, absolutely. You know, I even with my practices, there were some things that I didn't really want to do as a dentist. And, you know, I had specialists come into my practice periodically, you know, and then we just did a rev share on that. And it it worked out great because they got to come in and basically perform procedures with no overhead. And I got to keep things in house and profit on something where I was already paying overhead anyway. And and so you're right, there's a lot of ways to keep more of that production in house for sure.

15:13Matt Ornstein Yeah. You know, another thing, I I always like to talk about this, but Mike Huffaker of Planet DDS brings this up in his presentations. And I think they're in like I think tw around twenty thousand plus dental offices with Denticon. So they have a lot a lot of data. And the two things that determine the practices that are are have, you know, really good organic growth is the number of new patients.

15:14Dr. Jim Arnold You know, for ye mm. Yeah, I think s mm.

15:44Matt Ornstein per month that they're that they're getting. And 35 new patients a month is what you need to be getting statistically to achieve a six percent revenue growth organically per year. If you get 75 new patients a month, yeah you're looking at a nine plus percent organic revenue growth per year. And people say, well God, you know, I can't I can't get 35 new patients a month or set or 75

15:47Dr. Jim Arnold Mm-hmm.

16:13Matt Ornstein That's absolutely not true. You need to hire a great marketing company, and there are plenty of them out there. my favorite is Rise DDS. but you know, we use them, they've done an incredible job. But I promise you, all you do is dial up your advertising spend, your marketing spend, you'll get new patients. I mean, there's no shortage of new patients. You know, the other thing, too, is most doctors.

16:35Dr. Jim Arnold Yeah.

16:41Matt Ornstein Are tracking case acceptance and they're like, we have a an eighty percent case acceptance rate and they think their treatment coordinator and their staff doing a great job. But then you ask them, What's your case completion rate? And they're like, I have no idea. Well, and then

16:43Dr. Jim Arnold Mm-hmm. Huh. That's that's an interesting KPI I haven't really thought much about. Case completion.

17:00Matt Ornstein And then they look in yeah, and then they'll look in and go, gosh, we've yeah, we're we have an eighty percent case acceptance rate, but a twenty percent case completion rate. I I mean, you know, the analogy I use is you're the number one salesperson at a a car dealership. Everybody, you know, you you sell eight out of ten people come in, you sell them a car, but only twenty percent of them make the payments. I mean, what's the point?

17:24Dr. Jim Arnold Yeah. That's where the rubber meets the road. I mean, did they did they complete treatment? Did they pay for treatment? If they didn't, well, then your 80% might as well be 20%. Wow, that yeah, that's really interesting. You know what on the patient acquisition side, one of the things I also see, you know, you can be getting a hundred new patients a month, but if you don't have the team in place, if you don't have the systems established to actually capitalize on those two patients.

17:35Matt Ornstein Yeah.

17:50Dr. Jim Arnold you know, then then you could be throwing money out the window on marketing. You know, and I I I'm seeing more and more marketing companies, Matt, who are training office teams on, you know, how to handle their phone, how to handle case presentation, how to handle financial arrangements, those things to you know, kind of eliminate friction when it comes to, you know, actually accepting cases and then completing cases.

18:14Matt Ornstein Yeah. And I'm in you know, you know, just your normal like cleaning and x-ray, you're not making a ton of money. That's like the bread and butter. But there needs to be given a a a very high level intelligent thought into prioritizing the high dollar treatment cases. Because a lot of times, I mean, someone's having any pain in their mouth, they want that treated right away. If you tell well, we can we can come to that extraction.

18:33Dr. Jim Arnold Yeah, no, absolutely.

18:43Matt Ornstein you know, in yeah, the next opening is six weeks out. You know, I they're gonna, okay, thank you. Bam, I'm calling someone else right away. So, you know, high dollar treatment cases have to be prioritized. You have to make room on the schedule. And even if that means you know what, I have enough high dollar treatment cases where I don't usually work Fridays, but I'm gonna come in and work four hours every Friday.

18:50Dr. Jim Arnold Good luck with that. Mm-hmm.

19:11Matt Ornstein Watch your profits go through the roof if you do that. You know.

19:14Dr. Jim Arnold Yeah. Making yourself available and especially taking care of those people who are in pain. I mean, if somebody's in pain or somebody has an emergency, they're very motivated. But that motivation will go away really quickly, like you said, if you can't get them in, get them in right away and and take care of the problem. So, you know.

19:31Matt Ornstein Yeah. I mean, I tried to switch my allergist from the state I lived in a long time ago to where I live now. And the onboarding process was so cumbersome and so unpleasant, I just said, forget it. Like I'll just go get my allergy shots, you know, when I when I go back to visit. You know, and and and the process has to be

19:56Dr. Jim Arnold Yeah.

19:59Matt Ornstein It has to be easy and pleasant for the patients. It really does.

20:03Dr. Jim Arnold Yeah, absolutely. And that boy, that comes down to like as much as you can do online, the better. You know, you gotta have online scheduling. You've got to have opportunities for people to come in without necessarily having to talk to somebody because you know, we all like frictionless experiences. We all like to act in the moment. If it's ten o'clock on Saturday night and I'm motivated to make an appointment, by God, I wanna make it right now because by Monday morning I've already forgotten about it, you know, with I made another three hundred decisions. So

20:31Matt Ornstein Yeah. Yeah. And you're right. You know, if a if a if a practice doesn't have isn't staffed up properly to handle you know the new patients, you know, what does that really mean? Does that mean that you need to hire more people? Or does that mean that your systems and process flow is highly inefficient? Or does that mean, yeah, you don't need any new patients? But I find that hard to believe, quite frankly.

21:02Dr. Jim Arnold Well, I think I think when you're looking at growth, I mean you better have new patients because you always you're gonna have people move away or, you know, leave for some reason or their insurance. I mean, there are a variety of reasons people leave, but if you got people going out the back door, you better have people come in in the front door if you wanna maintain at the very least, but hopefully grow too. You know, with with you, you know, having built you know oak dental partners over the years, you obviously you've got a lot of experience in this area. What are two or three of the biggest things? kind of levers that that you've seen that create the most enterprise value.

21:37Matt Ornstein number one would be buying practices that are referring out a lot of high dollar treatment cases. That's an easy one right there. Now you find a practice that's already, you know, very profitable, the numbers look good, they have a really good reputation, and they're referring out a million, million and a half dollars a year. That's like an ideal target right there.

21:49Dr. Jim Arnold Yeah.

22:07Matt Ornstein And let's see what else. I mean, for me, that you know, that would that would be like the number one thing. Also, yeah, as you're growing to, it's very important to know what what your EBITDA is. And then what, if you sell your your group, what the EBITDA multiple is. So as an example, if you're if your EBITDA is high enough where you're gonna get a 10 times EBITDA multiple.

22:14Dr. Jim Arnold Yeah. Yeah.

22:33Matt Ornstein You can go out all day long and buy practices at a five times EBITDA multiple and you're making big money. An example is I'm gonna just use a number because a million dollars of EBITDA would sell for more than five times EBITDA. But you know, if if you have enough EBITDA and your group would sell at a 10x EBITDA and you can you bought a million dollar EBITDA practice for five times EBITDA, you paid five million. As soon as you buy it and integrate it into your your group, that practice is now worth $10 million.

23:00Dr. Jim Arnold Yeah. Absolutely. You not to mention some of the centralization of of of services and things like that. You're decreasing overhead at the same time. So, you know, your real delta may be even bigger than that.

23:04Matt Ornstein So that's called our It may be. That's exactly right. So if you can buy if you can buy other practices, I would say at an EBITDA multiple that's sixty percent or less than your current EBITDA multiple, and buy practices that are referring out a lot of high dollar treatment cases, you have a great formula for success.

23:36Dr. Jim Arnold Absolutely. You know, I think that people who are building groups, you know, there are certain levels where they get into a point where, man, there's some big challenges now that make it hard to go from say five to 10 or 20 to 60 or whatever. Looking at you, and I think you're around eight, eighty practices right now with with Oak, aren't you? Okay. So between 20 and 80, like what were some of the biggest operational challenges you faced in scaling in that?

23:56Matt Ornstein We're over eighty. Yeah.

24:05Dr. Jim Arnold In that time.

24:07Matt Ornstein Well, a lot of the challenges we had were already kind of smoothed out when I bought that group. the executive team, CEO, COO had been there from day one. So they had seven years experience, you know, already putting good good systems in place. but as you scale, there's a very fine line between Staffing your corporate office to meet the operational needs of your group as it's growing, and overstaffing before you need those human resources. Because if you overstaff too much before you can actually utilize and spread those costs out economically across all the dental practices, can really hurt your profit margins big time. And no one's really figured that out. It seems like

24:41Dr. Jim Arnold Yeah. Yeah, absolutely.

25:05Matt Ornstein Every corporate office for a group that's growing is either understaffed a little bit or overstaffed a little bit. And then maybe they're perfectly staffed for a very brief period of time, but it's it's a wave.

25:14Dr. Jim Arnold You don't I I think that any I think in a lot of industries, one of the hardest things to do when scaling is to keep your infrastructure growing at the same pace, you know, because it's it's kind of impossible to predict how you're going to grow. And so I agree. I mean, even in a dental practice, it seems like I was always a little bit overstaffed or a little bit understaffed. And I always felt like it was better to be a little understaffed. 'Cause then everybody's kind of stretching a little bit, you know, doing extra. Whereas if we're overstaffed then people are like, somebody also do that, that sort of thing. While you're paying more overhead.

25:51Matt Ornstein Yeah. I mean, I agree with you. I think in an ideal scenario you want to vacillate between slightly understaffed and perfectly staffed. And I'll tell you a good way to if if if you if you don't have any anyone on your team that really has a good sense or feel for that, hire a hire a great dental consultant. And I like to use the word invest in a great dental consultant or consulting group because those people

26:01Dr. Jim Arnold Yeah, yeah.

26:20Matt Ornstein Have been through this process dozens and dozens of times with dozens and dozens of of groups that are growing and scaling. And they understand organizational charts, they understand the ratios. You know, like how many offices can one regional manager handle effectively? You know, and then how many regional managers can a, you know, a district manager properly manage? But, you know, a good consultant know knows these

26:32Dr. Jim Arnold Mm-hmm. Right. Yeah.

26:49Matt Ornstein knows these things, you know, and when do you outsource your call center? When do you keep it in house? You know, et cetera, et cetera. So it it's a fine line and I don't think there's any direct answer, but there, you know, I I'm a big believer in investing in consultants.

27:06Dr. Jim Arnold Yeah, I I agree, Matt. I think that whether you're looking at consultants, coaches, mentors, whatever it is, I mean, find people who are are doing what you want to do or have already done or have helped others do it because you're just gonna compress time and you're gonna fast track success and hopefully you're gonna avoid some of the mistakes that others have made along the way. Because you and I both know you can learn as much from people's mistakes and challenges as you can from their successes.

27:32Matt Ornstein I agree. And better to better to learn from someone else what not to do than have to learn from actually doing yourself what you should not have done. Yeah.

27:33Dr. Jim Arnold You don't That's for damn sure. Yeah. I I I feel that way, Matt. You know, I figure I after thirty years in the industry, I've I feel like I've done just about everything, you know. And I made every single mistake you can make. And, you know, I've done some things really well too. And and I there's nothing better for me than to kind of pay it forward. You know, all the all the great advice I got for mentors, you know, to be able to kind of distill all that device advice into one place and be able to help other dentists kind of skip skip ahead a little bit and you know. fast track that success is is really what I'm committed to as well. So when you you know, when you look at a business and when you look at PNLs and all the kind of KPIs and metrics that you track every week, you know, what are a couple that you track every week that you think probably most private practice owners owners don't really pay attention to?

28:33Matt Ornstein I think the most important KPI to track is your free cash flow. How much money do you have in the bank? And how long will that last? Because the most dangerous situation is I mean, you could have I'm making a number up, you could have a million dollars of accounts receivable that has not come in and you have a hundred dollars in the bank and you have payroll coming up, you know, you're in big trouble. So

28:46Dr. Jim Arnold Yeah.

29:03Matt Ornstein To me, cash, free cash flow is for an operating business is absolutely critical. Cause you could have positive EBITDA and negative free cash flow and it's just a matter of time before you're you're bankrupt and out of business. I also really, really think it's important to to track what I already mentioned, case acceptance and case completion.

29:12Dr. Jim Arnold Yeah. Mm-hmm. Yeah.

29:30Matt Ornstein And you know, my third one would be number of new patients per month. I mean, those are those those would be my top three. 'Cause if you have a if you have thirty five to seventy five new patients coming in each month in a single location, your schedule should stay pretty darn full.

29:33Dr. Jim Arnold Mm-hmm. Yeah. Yeah, I think I It it should. And and you know, to your point, sometimes you know, when when things aren't scheduled efficiently, they can almost be two full. I see dentists all the time, like, Yeah, I'm booked out two months. It's amazing. You know, and then you look at it and they're not very productive because they haven't scheduled very efficiently. And maybe it's because they're not clinically efficient, maybe it's because they're understaffed to eat I don't know. But you know, to one of the points you made earlier, look, if you're booked out that far, then you're gonna have a hard time not only getting in new patients, but you're gonna have a hard time getting in emergency patients and whatnot. And so if you don't e effectively manage that schedule and, you know, have blocks, you know, production blocks, have new patient blocks, have emergency blocks, things like that. If you don't control your schedule, then patients will control your schedule and, you know, your business is really gonna suffer, I think.

30:38Matt Ornstein Yeah, you're you're definitely more of an expert. I'm not a dentist, and I've never actually run a dental office, so I'm not really qualified to opine on scheduling efficiency and scheduling optimization at the office.

30:50Dr. Jim Arnold I mean, thank God you don't have to do all that crap, Matt. I mean, seriously, those are the things, those are the headaches that you know, dentists or or practice managers just have to deal with on a daily basis. You know, I think

31:02Matt Ornstein I mean it's similar it's similar in home building, right? Because a a home and I lo I love real estate. I love it. I love watching new home come out of the ground and you know, go from dirt to a beautiful place for someone to live. but s you know, it's it's similar in real estate. You have to schedule efficiency if very efficiently. I mean, every every house is done the same. foundation you know i is prepared and and and the concrete is poured and I won't get in all the yeah the mechanical electrical plumbing has to be you know set and then the floor system goes in, then the walls go in, then the load bearing walls and joists, and then the second level, then the the truss system for the roof, and then boom, and then it's you know, sheathing and sheetrock, you know, mechanical elec it everything's done in a sequence. Every builder does it in the same exact order. And if one of them gets delayed,

31:52Dr. Jim Arnold Yeah. Mm-hmm.

31:59Matt Ornstein Every part in that sequence beyond it gets delayed. The subcontractor is not going to sit around and going, I'm just going to keep my guys on payroll doing nothing because you got delayed three weeks. They pull off, go to another job. And then when you're you're ready for them because of a two week delay, they're like, We well, now we can't come back for six weeks. And then everything gets out of whack. I would imagine, you know, paying attention to schedule optimization, which I have no expertise in.

32:03Dr. Jim Arnold Mm-hmm. Absolutely. Yeah.

32:27Matt Ornstein But you do is is is also a critical component to the profitability of a dental office.

32:34Dr. Jim Arnold Yeah, absolutely. I mean, it it really forms the foundation for everything you do. You know, if you don't if you're not looking at I mean, I I used to look at the whole the year as a whole. It's like how many hours are we gonna be in the office? You know, what are what are our revenue goals? let's divide it by hour and then look at each month and what's our real monthly goal? You know, one month it might be a hundred and fifty thousand, one month it might be two hundred thousand, depending on how many hours you are. And then you just gotta I mean you you know, I mean in in business, if you set goals out there, then you can always reverse engineer to those goals to to get them. And I'm sure I mean even in home building. I I mean I heck I worked construction when I was in college and and I saw this and I used to talk to the builders and and yeah it's it's a complicated situation, but you gotta set things up on a schedule that makes sense for all your contractors.

33:22Matt Ornstein Yeah. And I'm a I'm a huge fan of reverse engineering everything. Because that's the only Yeah. And then okay, if you know this is the goal, all right. What needs to happen? Boom, boom, boom, boom. What needs to happen to get there? so what does that look like on a on a daily basis, weekly basis basis, monthly basis, quarterly basis, and annual basis? And as long as you're tracking that, you know, if you're ahead of schedule, great.

33:27Dr. Jim Arnold Yeah. Yeah. Begin with the end in mind, right? Mm-hmm.

33:52Matt Ornstein But if you fall behind schedule, at least if you're tracking it, you're aware of it and you can say, all right, why did that happen? You know, the data's there. There's plenty of data. And then you can figure out, all right, we need to tweak this and tweak that. And we, you know, in the next three weeks, we need to make up, making a number up, you know, we need to make up 50,000 of production in the next three weeks. How do we do that?

34:00Dr. Jim Arnold Mm-hmm. Yeah. Yeah, I know. You know, even having daily goals. I mean, I remember sitting in in a morning huddle and talking about the day and hey, we're four thousand short of goal for today. You know, where are we gonna make that up? You know, where can we fit in an extra patient? Where can we do some more same day treatment? You know, who has a treatment plan that has all of this and we can add a couple of things, you know, and and so yeah, I mean it's always important to have your finger on the pulse of what's going on so that, you know, you can Yeah push the right levers to to reach those goals. So

34:47Matt Ornstein Yeah. And if you if you're paying attention to that, I was a I was an assistant store manager at Home Depot when I got out of college. And we did have daily goals and weekly goals and monthly goals, et cetera. And and the store manager would share that information with everybody there every day. And it's, you know, at first when I first started working there, I'm like, this is ridiculous. Like we can't control how many customers come in the door. Well, I'll tell you something that's fascinating that I learned in my time there.

35:04Dr. Jim Arnold Yeah. Mm-hmm.

35:17Matt Ornstein Often, if there's good customer service and you're interacting with the customers, and it's probably happened to you, how many times did you go to Home Depot? Because you just needed you all you needed was a hose, right? I'm going to Home Depot for a $15 hose. And back in the day when the customer service was awesome, like when I worked there, Bernie and Arthur were still coming in the stores because I worked in the Atlanta area.

35:30Dr. Jim Arnold Yeah. Right.

35:46Matt Ornstein You know, we were trained, a customer come in. Hey, how you doing? Welcome to Home Depot. What are you looking for today? hose. Okay. You have a price in in mind. What you know, how how many feet is it? Blah, blah, blah. Boom. What so what projects are you working on at your house? I I just built you know, I'm building a I'm building a garden. I want to build a vegetable garden. I don't have a hose to get to that part of the yard. I go, and then it's like, all right, well, you know, you probably want a you know, a a a handle for your hose, a sprayer for your hose.

36:02Dr. Jim Arnold Ha ha. Yeah.

36:16Matt Ornstein Right? Does that sound like a good thing? Yeah, let me show you where that is. Have you started your garden yet? No. Okay, well, you're gonna what do you what are you planting there? Blah blah blah. You know, and you need to have a do you have a shovel? Right? Are you building it yourself? All right, well, you know, you're gonna need some nails. Do you have a hammer? Do you have a drill? What are you gonna be planting in your garden? you know, we have that in the garden section. And then you need the topsoil and the and the vegetables and the fertilizer. I mean, I know it's happened to you, man, because it happens to me. I I don't like Home Depot or Lowe's very much anymore. I go to Ace Hardware because the customer service is awesome. Usually I'll just go for like I one thing. I'm I I need one thing and I come back and I've I've spent a hundred and fifty bucks, you know.

36:50Dr. Jim Arnold Yeah. Yeah. Good luck. Hey man, I I think that's so true. I mean, it goes back to McDonald's. As soon as they said, Would you like fries with that? I mean, profits went up twenty percent or something crazy like that because they just asked a question. You know, I mean, even in the download office, hey, would you like to whiten your teeth? I mean, that one question makes a lot of practices, you know, tens of thousands of dollars every year for sure. And and you know, people buy from people they like. You know, so whether at Home Depot or in a dental practice, it's all about that relation at least rapport, if not that leads to relationship. And if you're having great conversations with people and you're you're cognizant of what they might need that they haven't thought of, well they're they're gonna buy more.

37:40Matt Ornstein Yeah, I agree. I mean, I've been I go to the dentist four times a year, just because I I really value oral health because I do believe oral health is a precursor to your systemic health. And then and I dentists don't get the credit and the admiration that they really deserve. And I I firmly believe that. You know, I haven't I now haven't had a cavity in gosh, thirty something years. But I floss twice a day, you know, I tongue scrape and

37:53Dr. Jim Arnold Yeah. Mm-hmm. Mm-hmm.

38:09Matt Ornstein Brush my teeth probably three, four times a day. I go to the dentist four times a year. and I'm like, you know what, this is super important to me. But different dentists are different, you know. and if they just ask some questions, you know, you know, like, are you happy with your smile? Right? Are there any teeth in your smile that you're not happy with? The way that, you know, the way they look, the color. are you having any pain in your mouth that, you know, or are you, you know, would you would you be open to?

38:13Dr. Jim Arnold Yeah. Mm-hmm.

38:38Matt Ornstein a crown on that one tooth, right? You know, we can protect your gums with, you know, products like perioprotect. You know, there are a lot of things that a lot of opportunities that open up just by talking to the patients that the patients might not bring up to you.

38:41Dr. Jim Arnold Mm-hmm. Mm-hmm. Mm-hmm. Yeah, and it's not just the dentist either. I mean, that that comes down to teams and communication and systems and being really intentional about every conversation that you have and how you treat everybody. And the more you systematize those conversations, the I mean, it's it's amazing how one little change like that can really impact growth. You know, when you you look at that though, Matt, I mean, we're talking about the individual practice level, which is where everything starts, of course. The boots on the ground. Are the ones that are really doing all the you know that work. you know, as you go up to the manager level, you're making sure that those people do that. When you go into the leadership level, you know, you're the visionary who leads those managers to then hopefully manage those teams properly. But you know, when you look at a at a dental practice like with a dentist and team that is is looking at creating value. What what are some things that they think are important that buyers aren't necessarily looking at or don't value the same way?

39:57Matt Ornstein Hmm. well one thing I gotta tell you if you're if you're gonna sell your practice and then you're normally open four days a week and you say, all right, we're gonna be open five and a half days a week for you know the next 14 months and really drive our collections up, buyers look back three years and they're gonna they're gonna see right through that and they're gonna hold your feet to the fire with a massive holdback of of the funds.

40:24Dr. Jim Arnold Mm-hmm.

40:26Matt Ornstein because you know, a lot of sellers will do that. They'll ramp production up. And then as soon as they sell, then they go right back. I'm only working four four days a week. so I would say like be honest and stay honest and make sure your production, which which rolls down to your EBITDA, is going to be at a level that you can sustain for the next three years after you sell.

40:36Dr. Jim Arnold Yeah. Yeah. Man, you're you're that is so true. And I see dentists who, you know, they they spend a year like ramping up production, like, wow, look at this. I'm doing great. Then all of a sudden they sign a contract and like they are locked in to those numbers for the next three to five years. They may think, wow, I'm getting all this extra money, but like you said, buyers are looking back three years and saying, All right, well, I don't value it at this. I value it at this this average. And by the way, any of that extra, you're gonna have to keep these numbers going. or increase them to actually get that that hold back.

41:27Matt Ornstein Yeah, I think a smarter way to do it is just stay consistent, be honest and ethical with with your production at a level that you know you can maintain for another three years. And then negotiate into the purchase agreement that hey, if my if my if my collections go up, I you know, bait some formula where I'm gonna get paid a a a bonus down the road if I if my collections do go up. Another thing too, if if you sell, you don't want to tie any holdback or bonuses to EBITDA. Tie it to collections because it's very easy, you know, most of the buyers are pretty darn ethical, but

41:57Dr. Jim Arnold Absolutely. Mm-hmm. Yeah. Mm-hmm.

42:16Matt Ornstein Once you sell, you can't control the EBITDA at your office because the corporate office can allocate whatever they want in expenses to your office. So you could, I'm just saying I'm easy numbers. Your collections are a million a year and your EBITDA is 200,000 a year. If there's any holdback or bonuses, tie it to your collections going forward, not your EBITDA, because very easy. If the deal is all right, we held we held back a ha a half a million dollars as long, you know.

42:26Dr. Jim Arnold Mm-hmm.

42:44Matt Ornstein But your EBITDA has to stay at 200,000 a year. And then going forward, your collections are the same. And corporate throws these, you know, ridiculous expenses onto your office. And even though your collections are the same, now your EBITDA dropped to 190,000 a year, you could forfeit all of your holdbacks. So that's some advice I'd give some sellers. Tie any type of holdbacks or bonuses to collections only.

42:47Dr. Jim Arnold Yeah. Mm-hmm. Yeah. I think it's great advice. Well, you know, even collections can be challenging because you know, I I've seen situations. I saw a situation with a corporate group where they bought a

43:20Matt Ornstein be production then and then tie it to production if corporates handling the the accounts receivables.

43:23Dr. Jim Arnold Yeah. Yeah, absolutely. I mean, if they're not doing a good job on the accounts receivable end, then you know, you're paying for their or you're losing money be due to their ineptitude or change of systems. Yeah, I saw a corporate group buy a thirty six million dollar for practice group. And within three years they drove them down to twenty seven million. And and guess what? I was in there and I saw it, and it wasn't the doctor's fault. Yeah, I in my opinion, it was corporate's fault because of some of the decisions that they made and some of the changes that they made and how the culture went down and how they thought, we'll just backfill these positions. And you know what, when you start backf talking about backfilling relationship capital, you know, you're in a losing situation because you got, you know, Sally who's been there for 20 years and has built all these relationships. She's not I mean, everybody's replaceable, but it's not easy to replace somebody like that. You know, you're gonna see

44:19Matt Ornstein I agree.

44:20Dr. Jim Arnold really decline unfortunately.

44:22Matt Ornstein Yeah, I do want to say that the majority of buyers, the supermajority of buyers, are really good people. They're ethical. there's just a small percentage that'll that'll pull some shenanigans like that. It's a t small percentage.

44:31Dr. Jim Arnold Absolutely. You're right. And it's like people say it's like if you've seen one DSO, you've seen one DSO. You know, most of most of them are going to do a good job for you. And look, there's also better fits for some sellers. You know, Heartland might be a perfect fit for these five sellers, but these other five, maybe not, because I'd rather do things X, Y, Z. And so in that case, a different group might be a better, better buyer for them. You

45:01Matt Ornstein Yeah, absolutely.

45:04Dr. Jim Arnold You wrote a couple of great books, you know, the the art of the dental deal and the dental eba the handbook. I think they're it's great. I mean, I think that those are things that are so important for dentists to understand and other just industry people. And you really you really took brought it to a level where it's very easy to read, really easy to understand. You know, and a lot of people are reading them. For somebody who isn't gonna read them or hasn't read them or whatever, like what's what's the biggest lesson from one of those two books or both of those books that you wish that every owner knew before they even thought about selling.

45:40Matt Ornstein I'm gonna answer that, but I won't take a step back. So I have those on Amazon, but you can get them free if you go to dentalpitchbrokerage.com. Dental Pitch P-I-T-C-H brokerage.com. You can download them for free. The dental EBITDA handbook is 20 pages in large print. You can literally read it in 15 minutes and understand everything you need to know about EBITDA. The art of the dental deal is a little bit longer. You can probably read it in an hour, but that gives you a more

45:42Dr. Jim Arnold Yeah. I'll speak.

46:09Matt Ornstein Detailed, holistic understanding of what you need to do to build your dental practice or group for maximum exit value, right? the reason I wrote those books, I hosted a an event for dentists at Ruth's Chris, dentists that were interested in selling their dental practices. 12 dentists showed up, 12 showed up at the first event I did. And the first thing I asked them, I said, Who here has heard the word EBITDA?

46:28Dr. Jim Arnold Mm-hmm.

46:39Matt Ornstein And three people raised their hands out of twelve. And I said, Who who can clearly explain and clearly understands out of those three that raise their hand, how many of you can c clearly understand what it is, what it means, and and can explain it to someone else? No one raised their hand. And I was like, my gosh, this is this is frightening. And And then I started asking other dentists just randomly, do you know what EBITDA is? Well, I've heard of it. Well, what is it? I don't I don't really know. All buyers are going to value your practice on EBITDA times some multiple, five times EBITDA, seven, ten times EBITDA. If you don't understand what EBITDA is, you're dead in the water when you go to sell your practice or your group. So it's critically important to understand what it is. You can get those books for free.

47:10Dr. Jim Arnold Mm-hmm. Yeah. Yeah. Absolutely.

47:36Matt Ornstein On that website I told you about. And it's worth your time to read to read them. I get messages all the time on LinkedIn from people that are like, Hey, I read your book. I don't know you, I've never met you. I've seen you on podcasts and stuff, but I got, I got, I read your book. Thank you so much. Like it took me f 10, 15 minutes. I finally understand what EBITDA is and why it's important and how it relates to my dental practice. So it's critically important to understand, right? I mean, if you if you if you have a house, imagine. trying to sell your house and you don't know the square footage of your house and you don't know what similar homes in your neighborhood are selling for on a square foot, a price per square foot basis, how would you know what where to price your house?

48:17Dr. Jim Arnold Mm-hmm. Yeah. Exactly. Right. Right. Or or to increase the value, you know, whether it's a home or a dental practice, to your point earlier. I I think those are just great resources, Matt. I'm so glad that you wrote those. And and anybody listening who hasn't read those yet, definitely go and download them. I mean, it'll definitely be a great education because ninety percent of us don't really understand, you know, unless you've been through a transition process already. So

48:21Matt Ornstein How would you know it's worth?

48:47Dr. Jim Arnold You know, when you look at like val valuation methodology, Matt, I think there's still dentists who think that you know, the multiple is tied to collections, you know, as opposed to even. I mean, I hear all kinds of crazy things. And God, we went through a few years there where multiples were going crazy. You know, I think buyers were overpaying and you know, that created some some false expectations for for a lot of sellers, didn't it?

49:12Matt Ornstein It really did. yeah. I I'm more optimistic on a future for you know, sellers of dental practices or groups. What and I'm in the absolute minority in this opinion, but also, you know, when you talk to other brokers, they don't own operating businesses. They don't, you know, they don't on they really don't understand interest rates are very, very important in valuations for two reasons. Any

49:33Dr. Jim Arnold Mm-hmm.

49:42Matt Ornstein Any loan you get for a for an operating business is gonna have something called covenants in it. One of them is debt to EBITDA ratio. Like how much have you borrowed compared to your EBITDA? And there are strict limitations on that. And if you you come out of compliance, the amount of problems you have as as the as the borrower are hard to describe. I don't wanna get into it. The other one is jeez, hold on.

49:58Dr. Jim Arnold yeah.

50:12Matt Ornstein Always it's always I know what it is, but always like kind of the term escapes me.

50:18Dr. Jim Arnold You know, while you're thinking about that, I'll jump in. I will I will tell a tell a tale of you know okay, yeah, please.

50:24Matt Ornstein Hold on, I remembered it before I forget. it's it's Shoot, it was in my mind. I can't believe I that I'm having this mental block right now. It's gosh. Anyway, it's a ratio between your free cash flow and and your debt service, debt service coverage ratio. Right. So a lot of loans would be like you need to have twice as much two dollars of free cash flow for every one dollar of debt service. Right? So if you have

50:36Dr. Jim Arnold That's all right. Mm. Okay. Okay. I wasn't familiar with that one. Okay.

51:00Matt Ornstein Yeah, and that's always a second covenant in any type of of loan of any of any size. So if you owe the lender a hundred thousand dollars a year to service the debt, interest plus maybe amortization, you know, typical ratio is you need to have at least two hundred thousand dollars of free cash flow. So the lender knows, well, every dollar you owe me, you've got two dollars available in the bank to pay me so they feel comfortable. and

51:20Dr. Jim Arnold Yeah. Right.

51:29Matt Ornstein Y you know, that that's why you've gotta stay on top of your finances and understand your P and L's.

51:35Dr. Jim Arnold You really do, and especially for a growing group. You know, I did run into that six years ago. my my story was did really well on the first recap. You know, got nine point one six times my equity. I'm really happy and rolled a big chunk of that back in, you know, for the second recap. Hey man, we're gonna get another three to five, you know, in three to five years. Well, unfortunately, we're flying high, everything's going really well. But the the private equity firm that bought our DSO Unfortunately, they got way out ahead of their skis. I mean, they grew 50% in the first six months. They bought all these practices, borrowed all this money. And at the time, I didn't necessarily understand that. I just thought, wow, we're growing. My equity's going way high. And you know, unfortunately, Matt, when the pandemic hit and they shut us down for 10 weeks, guess what? That debt to EBITA ratio went in the wrong direction, and all of a sudden the bank was able to come in and take. Everything. So on September 3rd of 2020, I lost my 15 million dollars worth of equity. You know, and that that kind of stuff has happened to hundreds of dentists over the last several years. And it's because they had undisciplined buyers, undisciplined private equity firms. You know, most of them like are very disciplined and they've kind of stayed ahead of that, but but you and I have both seen a whole bunch of them lately that that they're or some that are just in desperate straits right now.

52:28Matt Ornstein Yeah, which happens all the time.

52:57Dr. Jim Arnold Because of those covenants.

52:58Matt Ornstein Yeah, and and that and so I I agree with you and it goes back to my point. and and most other brokers disagree with me on this, but I know I'm right. I'm one hundred percent right. I have enough experience in enough industries. when interest rates come down, when they come down significantly, the multiples that buyers can pay will go up because of the debt service coverage ratio. Yeah, so I

53:26Dr. Jim Arnold Absolutely, I agree.

53:29Matt Ornstein I was on a stage at Dykema with three other, you know, CEOs of brokerage firms in there, and they were they're telling the audience interest rates have no bearing on the multiples that a buyer will pay. And I and I and I just said it, I'm like, that's BS. That's absolute BS. And and and here's a perfect example. Like when we bought Oak Dental Partners, our our all in interest rate, interest plus one percent amortization was eight percent. Over the next twenty four months, it went up over twelve percent.

53:42Dr. Jim Arnold Mm. Yeah. my god.

54:00Matt Ornstein So I just use an easy example, right? Let's say your EBITDA was 16 million and your debt service at 8% was $8 million a year. Now you have $8 million of free cash flow. You can use that to grow, invest back in your business. Well, when interest rates went from 8 to 12%, and you had 16 million of free cash flow.

54:15Dr. Jim Arnold Okay. Yeah.

54:26Matt Ornstein and st and it's now you're not paying eight million to the bank, you're paying twelve million to the bank. That your free cash flow got cut in half. And

54:31Dr. Jim Arnold Yeah. Yeah, that debt service is I mean, it's it's incredible how much it can grow based on like just a point or two difference in insurance or in interest rates. Yeah.

54:43Matt Ornstein Yeah. Absolutely. I mean and and you know for these people to say interest rates don't affect EBITDA multiples, it's BS. And it also affects the enthusiasm in the market. It's the same thing in real estate, like like with an apartment complex. There's something called a cap rate. And when interest rates are low, you know, those cap rates might drop down, they can drop down as low as four percent, which means you're gonna get twenty five times your net operating income.

55:13Dr. Jim Arnold Mm.

55:14Matt Ornstein Well, because interest rates are higher right now, cap rates are like six and a half percent, which means you're not getting twenty-five times your net operating income. You're getting fifteen times your net operating income. So the value of your asset in dollars is much lower. It's the same thing with dental practices. Interest rates are very important to the buyers. And I and and so I think.

55:20Dr. Jim Arnold Yeah. Yeah.

55:40Matt Ornstein You know, after this long stretch of a high interest rate environment, we're heading into an environment in the next, I would say really the next like twelve to twenty-four months. I do believe interest rates are gonna come down. And you I'm and I believe activity on the buyer side is gonna continue to increase. And as a result, EBITDA multiples will increase as well. So I'm very optimistic with that. And also AI's coming in and technology. So even without reducing headcount at an office.

55:58Dr. Jim Arnold Mm-hmm. Yeah.

56:09Matt Ornstein and I'm not a big fan of reducing human headcount. I think it's kind of an important thing to consider is the human side. but the efficiencies and profitability and profit margins of dental officers should go up in a noticeable way due to AI and these super awesome technologies.

56:16Dr. Jim Arnold Mm-hmm. Hey, and and look, the reality is we are probably in an era where offices are more understaffed than they've ever been coming out of the pandemic and everything else. And so you may not be decreasing headcount, but maybe you don't have to desperately find somebody because of some of those efficiencies that are created by AI. And I tell you at the office level too, those efficiencies are beautiful and they help. us be better versions of ourselves, you know, not only make better decisions, not only better diagnoses, not only better communication with patients and with insurance companies and everything else, but those efficiencies free us up to spend more time on the relationship with the patient. You know, everybody who's worried about AI and it's going to replace me and all these kinds of things. No, it's just going to help you do your job better. It's going to help patients get better care and it's going to improve your relationship with them as well. And I love it. And that's why I think this is the most exciting time ever to be in dentistry, don't you think?

57:24Matt Ornstein Absolutely. Absolutely. I think the f I actually think the future for dentistry is exceedingly bright. I really do.

57:26Dr. Jim Arnold Yeah, and it Yeah, I I agree. I mean, people are always gonna have teeth. There's always gonna be work to be done. There are gonna be new things that make it even better. And and going back to interest rates for just a second, I mean, between the math, I mean, the math doesn't lie, and buyer confidence, those are two things that I think are great indicators of hopefully like really good times to come over the next 24 months. When you look at

57:58Matt Ornstein Yeah, I mean fact.

58:02Dr. Jim Arnold at a practice, you know, that somebody's thinking, man, I really want to sell in about two years. What would you focus on first as a seller? You know, or as an advisor, what would you tell them to really focus on over the next 24 months?

58:20Matt Ornstein I would make sure that they get their books cleaned up really, really well.

58:26Dr. Jim Arnold Yeah.

58:26Matt Ornstein And if that means switching CPAs to a CPA that specializes in dental, you should switch.

58:33Dr. Jim Arnold my God. If you're not working with somebody who specializes in dental already, you you're really missing the boat.

58:40Matt Ornstein Absolutely. So that's that's number one. the other, you know, the other stuff is the stuff that I mentioned, which is really take a an honest look at your case acceptance rates and your case completion rates. if you have room, if your schedule is under optimized, then spend the invest the extra money to really bolster your new patient acquisitions.

58:48Dr. Jim Arnold Mm-hmm. Mm-hmm. Mm. Mm-hmm. Yeah.

59:09Matt Ornstein At a cost that makes sense. and then stabilize, at a minimum, stabilize your production and collections. And in a an optimal scenario, get some reasonable organic growth over the next 12 to 24 months. Reasonable, like where someone's not gonna say, this is BS. I see exactly what they're doing.

59:31Dr. Jim Arnold Mm-hmm.

59:35Matt Ornstein You know, what's what is what's good organic growth? The buyers are really, really happy if you have eight to ten percent organic growth. They'll be like, This is a really strong dental practice.

59:45Dr. Jim Arnold Absolutely. Especially if you can show that year over year over year. And that's just a reflection of your systems and people, which I mean, you and I both know that's what a buyer's really buying. You're not necessarily buying production or collections, you're buying that stability, you know, and stability does come down to systems and people without it being too r dependent on like one person. I mean, you see dentists all the time, don't you? Who they're doing all the production, they're making all the decisions and Those are risky purchases, aren't they? Matt Ornstein (01:00:17.872) Yeah, that's you just brought up something super important. So if you're a super producer in your own office, you're gonna get a much lower multiple. Like I see I I have worked with dentists and they're like, you know, absolutely crushing it. I mean, these are like, you know, Elon Musk's of dentistry. They're putting down like huge, huge numbers on on production, collections, and net profit, EBITDA. Huge numbers. And guess what? Dr. Jim Arnold (01:00:33.612) Yeah. Dr. Jim Arnold (01:00:37.475) Yeah. Matt Ornstein (01:00:43.728) They might have one or two associate doctors in there, and that super producer that owns a practice is doing 70% of the production. 60% of the production. That's a very scary scenario for a buyer because what if something happens to that doctor post acquisition? Right? I mean, that's a huge risk. And I, you know, we had a a very sad situation where we we bought a practice in North Carolina. Dr. Jim Arnold (01:00:50.85) Yeah. Dr. Jim Arnold (01:01:02.423) Right. Matt Ornstein (01:01:12.464) It was in a rural area, which is hard enough to staff. And the doctor at fifty years old, he was the only doctor at the office and he was walking on the treadmill about two years ago and he had a heart attack and died. It was very, very sad. Dr. Jim Arnold (01:01:15.907) Yeah. Dr. Jim Arnold (01:01:25.779) no! my god! Matt Ornstein (01:01:29.124) And then we were unable to find another doctor because it was a rural location. And you know, we just closed the office down. We tried and tried and tried, you know. So being a super producer is fantastic. If you're not selling, it's awesome because all that production comes to your financial benefit. But if you're trying to sell, you know, buyers will pay a lower multiple if you're a super producer. So bring some other people in. Dr. Jim Arnold (01:01:40.106) what a shame. Dr. Jim Arnold (01:01:49.806) Yeah. Dr. Jim Arnold (01:01:57.311) No doubt. Matt Ornstein (01:01:58.788) Train them, teach them. Spread spread the wealth. Dr. Jim Arnold (01:02:02.179) I spent I spent five years, Matt, like trying to make myself obsolete with my practices, you know, because I was a super producer for quite a while. And as soon as I got a couple of associates, I I really right away wanted to focus on getting them to be more productive. You know, not not just more productive, but better dentists and better communicators, all that sort of thing. Because I saw that two things would happen. One, I'd have a little more freedom. well, three things, I guess. Two, I may have some passive income. And then three, When it came time to sell, it would be a lot more valuable because I wasn't that that key man super producer kind of thing. And I think it made a big impact. I on the flip side, I have a friend, Matt, who had a $12 million practice just crushing it. And I introduced my friend to my private equity friends, who I I've helped them build four DSOs over the years, just with introductions and deals and that sort of thing. But they literally looked at all of her stuff, even though, I mean, taking home like Four million dollars a year, roughly. Said, I wouldn't pay a dollar for that practice. Like, what? I didn't understand at the time. What are you talking about? And like, you know how risky that is? Cause the two producers are, you know, whatever age and all this sort of thing. It's like, wow, you know, I really never thought about it. Well, we did end up finding her a buyer who, you know, I mean, sold for 25 million, you know, like an eight multiple or something like that. And it was a great result. But I also said, I mean, you better get as much of it up front as you can because this is an undisciplined buyer. And guess what? That buyer was making a lot of deals like that. I said, you know what? Whatever you got an equity, just write it off because at some point they're gonna run into one of those covenants that's gonna, you know, cost everybody everything. And sure enough, it that that has happened. Matt Ornstein (01:03:45.722) Yeah. Can I bring up one other topic? Cause I hear a lot of misinformation. Like you made a comment that you rolled equity and if everything had gone well, you thought maybe you could get a three to five, additional three to five multiple on the equity that you rolled over. I'm 100% right about what I'm gonna tell you. That is impossible. So anybody and I'm gonna explain why, but anybody so like what multiple of EBITDA did you sell at? Dr. Jim Arnold (01:03:48.44) Please. Dr. Jim Arnold (01:04:16.507) way too low eleven years ago. Matt Ornstein (01:04:19.046) I know, but give me just, I mean, approximately. Okay. Okay. Well, three and a half. Yeah, okay. That's a different scenario. You might have gotten a a three to four X if everything had gone well. But what I'm gonna tell you is like no group out there right now is selling for more than a 12 times EBITDA, right? They might have 20. Dr. Jim Arnold (01:04:21.57) Like three and a half. I should have sold for five or six. Dr. Jim Arnold (01:04:34.082) The two. Dr. Jim Arnold (01:04:41.388) You know, just just one sec. I I do want to clarify one thing, what I said, and I may have misspoken, and if I did, I apologize. when I said I sold for a multiple of my EBITDA, that's that number. When I say three to five times my equity, I I was saying I wasn't talking about my EBITDA. It was my equity in the overall company. Do you see it see what I mean in terms of of that? Okay. Yeah. Matt Ornstein (01:05:06.126) Yeah, I do, but I wanna I wanna explain something. So no group right now is gonna get more than twelve times EBITDA. You have twenty million, thirty million. The higher you no one's paying more than a twelve times EBITDA multiple right now. So I hear this a lot. Like I s let's just say someone had a a group and they're selling at a six times EBITDA multiple. Okay. And let's say they're gonna they purchase price is ten million. Dr. Jim Arnold (01:05:13.782) Gr agreed. Yep. No doubt. Dr. Jim Arnold (01:05:20.098) Agreed. Matt Ornstein (01:05:33.412) at a six times EBITD multiple. And the the the buyer says, I'll give you half of that, five million. And then you roll the other five million, which we valued at a six times EBITA multiple, into the holding company. Dr. Jim Arnold (01:05:47.478) Mm. Matt Ornstein (01:05:49.264) That six times EBITDA multiple, best case, would trade at a twelve times EBITDA multiple at sale. So whatever equity was rolled over, it's only going to be worth maximum twice. So if you rolled five million over Dr. Jim Arnold (01:05:56.024) Sure. Mm-hmm. Dr. Jim Arnold (01:06:02.159) Unless if they have debt they have to pay off first and then it's even less than twice. Matt Ornstein (01:06:07.612) Right. But in an ideal scenario, if you sold it a six X for ten million, you took five million cash, you rolled the other five million into the holding parent company, at most, best case scenario, that five million when the parent company recaps at a twelve X, that five million at most would be worth ten million. It'll go from a six X to a twelve. So when people say, you roll your equity, I hear this all the time, you're gonna get you might you get it, whatever you roll over, you're gonna get a five times Dr. Jim Arnold (01:06:09.932) Yeah. Yeah. Dr. Jim Arnold (01:06:27.329) So Matt Ornstein (01:06:37.737) Whatever, if it's a dollar, you're gonna get five dollars later or ten dollars. I hear these ridiculous stories and it's BS. It's BS. Dr. Jim Arnold (01:06:39.127) Yeah. Dr. Jim Arnold (01:06:44.142) True. Well, here's the only scenario where that can happen. And what what the one of the problems that happens, I think, is when a big PE firm comes in and grow, you know, buys this 80 practice group at whatever multiple, the the onus is upon them then to keep growing. Like if they can, you know, grow it from 80 to 200, where they're they're purchasing, say at a five multiple, if they if they've increase the number of practices that much, then the overall EBITA number goes up. And then if they sell it a twelve, they've got an even bigger delta. And so the delta isn't just based upon those first eighty practices. It's based upon, you know, the other hundred and twenty that they buy at a bigger at a bigger delta. Matt Ornstein (01:07:31.258) I'm gonna respectfully disagree. I've done a deep dive into this. I'm phenomenal with math. I promise you Dr. Jim Arnold (01:07:33.569) Okay. I I have no doubt. You you know more about it than I do. I I'm explaining like my what I what my understanding was, which of course was flawed because I lost everything. Matt Ornstein (01:07:43.332) Yeah, so that That so that's all it's all a lie. It's a lie. Because let's say even when you rolled that $5 million over, as that holding company, the PE from buys more and more. Let's say that $5 million got you 1% of the company. And then the company doubles in size. You now your 1% equity is diluted down to 0.5% equity. I'm telling you, I I don't have the time to go into it, but if anybody Dr. Jim Arnold (01:08:11.596) Yeah. No, I I get it. Yeah, as long as they if they keep giving equity away, that is absolutely true. You know, unless they freeze one. Matt Ornstein (01:08:17.658) Well, they keep allowing rollover equity. So if you roll equity, best case scenario on any equity you roll over, best case for every dollar you've rolled over in purchase price, best case you'll get two dollars back. Probably yeah, maybe a dollar fifty. Dr. Jim Arnold (01:08:21.378) Yeah. Dr. Jim Arnold (01:08:33.134) Well that's that is I think a good I think that's a really good learning point for anybody looking at that. And to your point, if somebody makes some a promise that seems too good to be true, it's probably too good to be true. Unf unfortunately. Matt Ornstein (01:08:47.696) Yeah, and I hear that all the time. It just it annoys the heck out of me. I talk to people and they're like, Yeah, my this broker told me you know, I should, you know, take fifty percent in cash and roll the other fifty percent and that money's gonna, you know, eight or nine or ten X when when they re when the buyer recaps. Dr. Jim Arnold (01:09:06.284) Yeah, now that's totally crazy. You know, I think I think some of that comes from some of those early transactions. You know, I look at Heartland in particular. Some of the early guys into Heartland, you know, like after four recaps, you know, went from X to a hundred million. As and and I think that too many people saw that and thought, yeah, I'm just gonna keep going, keep going. You know, and and I think that that is a I think that's kind of a one off. I don't think that's happened a whole lot of other times. Matt Ornstein (01:09:08.741) Now Matt Ornstein (01:09:35.246) No, more often than not, like Generally speaking, if I was selling, I would want as much cash in my pocket right now as possible and completely avoid any rollover equity risk because too many factors are out of your control. so like I'm a big I'm a big fan of, you know, what is it? a bird in hand is worth two in a bush. Dr. Jim Arnold (01:09:50.466) Yeah. That's right. Dr. Jim Arnold (01:10:01.385) You're absolutely right. And Matt, I I I'd say seven years ago I totally disagreed. And everybody I was talking to, because I had done so well on the first recap, I'm man, yeah, get as much equity as you can because these have never failed. And you get on that merry-go-round and just keep going. And you know, of course, after what happened to me, I I my my feeling is exactly the same. Get as much as you possibly can up front. No, no doubt about it. Too many things out of your control. You know, when you when you look at those deals though, Matt Ornstein (01:10:26.907) I agree. Dr. Jim Arnold (01:10:30.594) I I mean sometimes you come in it it's a great price at LOI and then after due diligence and everything, you know, it gets repriced, it goes down. What what's the biggest reason or the most common reason that happens during due diligence? Matt Ornstein (01:10:45.37) getting accurate adjusted EBITDA numbers. And you know, I don't I don't think buyers do that in an unethical way, right? The sellers will represent or the brokers will represent, the you know, the EBITDA's a million dollars. And then the buyer digs in and digs in and sa you know, finds out, well, no, the the EBITDA's eight hundred thousand. And we were gonna pay you six X on the million Dr. Jim Arnold (01:11:03.139) Mm-hmm. Matt Ornstein (01:11:15.004) Which would be six million, but your real EBITDA's eight hundred thousand. So we can only pay you four point eight million. I d I I you know I don't I haven't found buyers to be unethical. I haven't I haven't I haven't seen that. I haven't seen buyers being dishonest on purpose or unethical. You know, the r the retrade, as they call it in real estate, is is based off of discrepancies of what was represented as e as EBITDA. Dr. Jim Arnold (01:11:42.786) Mm-hmm. Matt Ornstein (01:11:43.46) And then what really came in as real Ebida. Dr. Jim Arnold (01:11:47.949) Y you know, this this really underscores Matt again, the importance of having a representation because I have seen that happen way too many times where they yeah, EBITDA's here and we're gonna offer you this. And it's like this whole bait and switch thing. I I have seen it, you know, as as a dentist who has you know, I I guess I've been through about sixty deals with friends and a few of my own. And I've just seen this time after time after time. And and my my business partner. you know, he was on the the buyer's side for DSOs for 20 years. And he's seen it too, because he was the guy architecting the deals, you know, in the favor of the buyer because that's who he worked for. And and by the way, he was on the opposite side of the table when I sold. So he got his buyers a really good deal. And you know, I could have done a lot better if I had had him on my side of the table. And and so it is interesting to look at it from both sides of the table and you have that buyer's experience, and that's why you are such a good seller's rep. And I feel the same way. You know, when you see some of the things that can happen, whether it's done deliberately or it's just one of those things that happens in due diligence due diligence, you know, going into that LOI, the more you know, the better prepared you are to or less like it is to have a repricing go on after after L I. Yeah. Matt Ornstein (01:13:03.962) Yeah. So I guess my experience has been with Oak Dental Partners. We've never gone back and tried to retrade off of like BS. It's always been legit you know, EBITDA concerns. And then at dental pitch brokerage, you know, every seller we've had has done a a third party independent quality of earnings. So our MA team knows the real numbers. Dr. Jim Arnold (01:13:10.307) Yeah. Dr. Jim Arnold (01:13:14.188) Yeah, of course. Dr. Jim Arnold (01:13:28.824) Yeah. Matt Ornstein (01:13:32.934) You know, a buyer might come back and say, Well, you know, we we thought the EBITDA is, you know, nine hundred thousand, not a million. And so we sit down with that buyer and say, Go, let's go through the numbers because we have our own quality of earnings, like Dr. Jim Arnold (01:13:49.176) Hmm, I lost you there. You're frozen right now. Matt Ornstein (01:13:50.928) We have our own quality of earnings, so let's see w where the discrepancy is. Dr. Jim Arnold (01:13:57.177) Since I can't hear you right now, I'm gonna jump in and say, yeah, yeah, absolutely. The more information you have on your side of the table, the more that you know about your practice, the the better protected you're gonna be. And you know, that's what you guys do, and that's what we do, and that's why representation is so important. You know, dentists without representation, we always say are going to a gunfight with a feather. You know, when they go with one of us on their side who kind of understands that and makes sure that you know. more about the practice and the numbers than the buyers do, well, you're going in with a howitzer. And and to your point, yeah, you could be a little bit off in Ebitha. You could you could, you know, have a little disagreement. And that's why you gotta be able to to back it out and sort of justify and and show how you came up with those numbers. Matt Ornstein (01:14:42.234) Yeah. And we defend our sellers EBITDAs, you know, tooth and nail. provide provided it's legitimate. I'm not gonna I'm not gonna try to defend some EBITDA that's BS. Dr. Jim Arnold (01:14:46.605) Yeah. Sure. Dr. Jim Arnold (01:14:56.84) I agreed. And and look, there and there are sellers, usually it comes in a you know a situation where their numbers are just messy and and they don't really know what they're doing. Or, you know, maybe they've done something nefarious, you know. But we as the representatives, we gotta find that too, because we gotta call that out before we take them to the table because we wanna be good partners with buyers as well. You know, i if one side loses, both sides lose. And and that's why. you know, honesty and integrity as a seller, as a representative, and as a buyer, that's what makes the world go round, right, right. Matt Ornstein (01:15:32.11) I agree. And I I like honesty and transparency with everything. And you know, our our goal is always to get our clients the highest value possible based off of true and accurate numbers. Dr. Jim Arnold (01:15:35.522) Yeah. Dr. Jim Arnold (01:15:45.912) Mm-hmm. Dr. Jim Arnold (01:15:50.103) Yep, that that's exactly right. Not to mention, I mean, your reputation means a lot in the industry, you know. And if you want to have buyers continue to come back to, you know, work with you with your sellers, you know, you got to be good partners. And that's and that's what I look at. I I look at it now from a totally different standpoint as hey, hey man, we're we're partners in the process and all we want is for everybody to win at the end of the day, the seller to get a great price, find the right partner. And the buyer to you know get an asset that they can hopefully continue to grow and you know provide great care, provide a great workspace and culture for the teams. And you know, some groups are better at that than others. And you know, that's why, you know, as as as sellers and brokers, we want to make sure we find that right buyer. And but you know, to your point, yeah, man, it's your life's work, it's your greatest asset. We want to get the highest valuation possible when. When is that highest valuation or that highest I guess offer maybe not the right offer? Matt Ornstein (01:16:53.116) The highest price may not be the best price if you have to roll over a substantial amount of the purchase price into the buyer. Like I'm just making this up, but you know, I have talked to so many people that have rolled equity over into the buyer's company. I can't even count the amount of people that literally lost all of their rollover equity, right? So, Dr. Jim Arnold (01:17:07.309) Yeah. Dr. Jim Arnold (01:17:16.419) Yeah. Matt Ornstein (01:17:23.524) I I'll give you example. Like, would you rather sell your group for 20 million and get 10 million in cash and roll over 20 million, which may completely disappear and you end up with 10 million? Or would you rather get 18 million for your group and get fifteen million cash at closing and only have to roll over three? And maybe things go well, but maybe they don't, right? So there's a great example. Dr. Jim Arnold (01:17:47.553) No brainer. That's right. Yeah, because it's not just the top line number, it's how it's structured. It's how it's structured, what the expectations are. And I'd say even beyond that, it's about the relationship. You know, what's your life going to be like post sale? I I think that sometimes dentists can look at the numbers and want the most. Of course we want the most, but I've seen too many situations where maybe got the most. But then they were miserable for three to five years because it ended up not being the right fit. It doesn't mean that the D SO was bad or the buyer was bad. It just means that it wasn't the right fit. And that's why that fit part I think is is super important. Matt Ornstein (01:18:31.984) Yeah, I agree. Especially if you if you're gonna stay on for three to five years. I mean, I don't know how you put a a price on your happiness and quality of life and mental emotional health. Dr. Jim Arnold (01:18:41.643) Yeah. Absolutely. Because Matt Ornstein (01:18:45.924) Because if you hate going you wake up every day and you're like, gosh, I hate have to go to go to the the office today and you're stuck in that for three to five years. Is it really worth that little bit of extra? Probably not, man. I agree with you. Cultural fit, operational fit. some some doctors, you know, they're like, Hey, I don't want anything to do with the operational side anymore. I just want to come in, see what's on my schedule, do my work, and go home and play golf Friday and Saturday. Dr. Jim Arnold (01:19:00.632) Right. Dr. Jim Arnold (01:19:16.035) Yeah. Matt Ornstein (01:19:16.088) Okay. Well, then you don't mind you know, a DSO that likes to micromanage. Let's just use that. Right. Dr. Jim Arnold (01:19:28.31) Sure, yeah. Some dentists agents wanna offload all of those decisions and not have to do any of that stuff. Matt Ornstein (01:19:34.32) Yeah. And then some doctors, and there's and there's plenty of them and good for them, when they sell, they're like, you know what? I don't want anybody telling me what to do. Just let me run the office, you know, offload all the stuff I don't want to do, but I don't want anybody telling me how to run my office. Dr. Jim Arnold (01:19:44.716) Yeah. Dr. Jim Arnold (01:19:50.243) That is exactly, exactly the right, the right example, Matt. Exactly. Because it's two totally different scenarios. One is perfect for Dr. A and the other one is perfect for Dr. B. A hundred percent. You know, and and frankly, as a dentist who if you are a dentist who takes your business really seriously and it's like a big part of your identity, no, under any circumstances, when you sell, it's a big life change. Matt Ornstein (01:20:03.962) Yeah. Dr. Jim Arnold (01:20:17.336) You know, y it's like you lose a little part of that identity. And I was one of those guys who struggled. I loved my buyers. I still love my buyers. We're still all really good friends. That having been said, hey man, I had a couple of months where it was just a tough mental transition for me more than anything. Matt Ornstein (01:20:32.986) Yeah. Yeah, you definitely need to have that the right fit or or you're gonna be unhappy post sale. And there's no need for that. Dr. Jim Arnold (01:20:40.526) For sure. Well, no, no, absolutely not. And that's why all the due diligence and finding the right fit, having representation who has a bunch of buyers, you know, you could look at that and say, gosh, we have 80 buyers. And I think these six might be the best for you based upon how they operate and what your most important you know, what your priorities are too. You know, it's like matching that up, I think is is really there's a lot of value in that for sure. Matt Ornstein (01:21:06.916) Yeah. Another thing I would say if you're gonna if you do hire a broker on the sell side to help you sell, you need to ask that broker and get something in writing and make sure that that broker is not getting any type of fees or success fees or commissions from buyers. Which we don't at dental pitch, we don't take a penny. We will never take any penny a penny from any of the buyers. Creates a huge conflict of interest, right? Dr. Jim Arnold (01:21:25.654) Mm. Dr. Jim Arnold (01:21:34.062) I I think that it it can, and I've seen that happen certainly. I do think that at the end of the day, it it kind of com it from a financial standpoint. I think it kind of comes out in the wash a little bit because buyers sort of factor in, you know, a commission, whether it's on this side or on that side. But you're right. I mean, that that's a situation where it could it could compromise a broker if they're if they're unethical. Matt Ornstein (01:21:57.788) Well, I mean the situation that I'm talking about is you've got two offers coming in that you know are are good for the seller. And one's lower, five hundred thousand lower, you know, whatever. and then if you're if you're a if you're a broker and you're and you're and you're living off of you know your success fees and and you say, all right, well, even at this lower price for the seller. Dr. Jim Arnold (01:22:05.496) Mm-hmm. Yeah. Dr. Jim Arnold (01:22:14.584) Yeah. Matt Ornstein (01:22:27.802) My total commissions are going to be higher because I'm getting something from the seller and something from the buyer. It's a major conflict of interest. Dr. Jim Arnold (01:22:32.958) I s yeah, I see what you mean. Yeah. Yeah. you know, and and that's why we we work we work w we take a success fee from the seller because to your point, we feel like that's who we're working for and we never wanna be in a position where there's ever even a thought about that. And even though there would never would be a thought, don't want that to be the perception either because sometimes perception becomes reality in people's heads. So Matt Ornstein (01:22:59.504) Yeah. And I mean if a broker discloses that, you know, that's fine as long if you're c if you're okay with it, then that's cool. Dr. Jim Arnold (01:23:05.388) Yeah. Yeah. Cause I do know I know good brokers who do it both ways and I know bad brokers do it both ways too. So, you know, it's really due to your due diligence when it comes to the brokerage as well and just make sure that your your values are aligned with them and you know, get some testimonials, get some people who said, Yeah, I've worked with them, I'm really happy with the results and you know, and then then you can usually take it to the bank. You know, what when when a deal falls through. You know, sometimes you you get to LOI and everything looks good, but what what are some of the reasons that that you've seen that deals just completely fall apart after that? Matt Ornstein (01:23:42.32) The main reason I'm seeing is a lot of doctors have their associate doctors on 1099. And the doctors like that because the doctors you know can form an LLC. and if they're being paid as a contractor, the doc the associate doctors can write off a lot of expenses. They're being paid as a ten ninety nine. There are no buyers out there. Dr. Jim Arnold (01:23:51.468) Mm. Dr. Jim Arnold (01:23:58.488) Mm-hmm. Dr. Jim Arnold (01:24:06.198) Right. Sure. Matt Ornstein (01:24:12.184) that will buy an office without the doctors and associates signing an employment contract and being W to employees anymore because I don't want to you know there there's a lot of I mean it's a it's a it's a legal issue. It's and and I have seen several deals fall apart where the selling doctors as associates, associate doctors refuse to become W to employees 'cause then they Dr. Jim Arnold (01:24:26.882) Yeah, no, absolutely. Matt Ornstein (01:24:41.338) They lose all the deductions that they get by being 1099. And the deal I I've seen several just fall apart on the one yard line because of that. So if you're if you're a selling doctor, I'm just you need to know this at the time of sale, before you know, all of your associate doctors are gonna have to become W 2 employees of the buyer. Dr. Jim Arnold (01:24:45.738) Yes. Dr. Jim Arnold (01:25:04.034) You know, and that comes down to communication, I think, and the relationships within the practice. You know, when when things like that aren't understood by the selling doctor and all of a sudden it becomes a big issue with the with the associate doctors, you know, that that's really, I think, often just a poor communication, poor planning. You know, I think that as a seller, like you know, I had twenty-seven people who I had to, you know, convince that this is a good thing, you know, and everybody has different reasons for being afraid of change or perhaps different reasons to see potential in that. And so those conversations I think leading up to a sale are critical. And, you know, the onus is on the the seller to have those conversations at with the right people at the right time in the right way so that you don't have things like that derail it at the last minute. Matt Ornstein (01:25:52.42) Yeah. I mean, what's very common too is the selling doctors don't want anyone in their office to know that the practice or group is up for sale. So because they're afraid they're gonna leave, because people are you know, they're just always our our brains are wired where let's look at the worst case scenario, right? It's just a survival instinct. So the doctors won't tell the Dr. Jim Arnold (01:26:02.884) Yeah. Dr. Jim Arnold (01:26:06.871) Right. Dr. Jim Arnold (01:26:14.924) Right. Matt Ornstein (01:26:18.926) employees in the office or the associate doctors, I've got our I got my the practices up for sale. And then all of a sudden you get an LOI. And then at the last minute, right, when you're on the like 10 yard line, you've got to tell all every all of your employees and your associate doctors, you know, I'm selling. And, you know, I I don't really know how you address that issue. I don't know how, but that's it it is a huge issue in the industry. And Dr. Jim Arnold (01:26:38.284) Mm-hmm. Dr. Jim Arnold (01:26:44.579) Yeah. Matt Ornstein (01:26:47.876) I have yet to work with any selling doctor that has not told us I don't want any of my employees knowing that I'm gonna be selling until the last minute. Dr. Jim Arnold (01:26:56.738) You know, it it it's interesting. I agree probably ninety percent of the time I think that's the case. We're actually working with someone right now who has well husband wife, they have their team involved in the whole process. So they've been very transparent. And tell you what, Matt, the team has been phenomenal. They they've really done a great job. I think they got they got their information to us faster than anybody ever because they were all on the same page and there was that transparency. And I think Just that knowledge decreased any kind of fear, you know, of of a bad outcome or whatever. And that again comes out of that relationship. Matt Ornstein (01:27:30.235) I mean Yeah, I I would be forthcoming with it if I was a selling doctor. And I'd also tell everyone, look, this is a good thing. these are the ish the items and things that are not going to be on your plate anymore. So the work environment, you know, is gonna be even more pleasant. And number two, post sale, I'm staying on for three to five years. I'm not going anywhere. It's not like I'm leaving. And I think that that would give, you know, the employees and the associate doctors Dr. Jim Arnold (01:27:50.467) Yeah. Dr. Jim Arnold (01:27:56.866) That's right. Matt Ornstein (01:28:02.02) A huge degree of comfort. Dr. Jim Arnold (01:28:04.354) Hundred percent. And you know, Matt, that goes to the communication with buyer going into LOI even. It's like you there's certain things that you really gotta negotiate. You know, these are things that that we want to continue with post sale. And these are the things that I need as reassurances that that my team's gonna be taken care of. You're not gonna pull the rug out from under them. Some of the things that they've come to expect and anticipate. We realize there are gonna be some changes, but these three things are non-negotiable. And if you don't negotiate that. on behalf of your team or your broker doesn't negotiate that on behalf of your team, then you're gonna end up with a, you know, either angst going into the deal or angst coming out of the deal because it's not what you thought it was gonna be. Matt Ornstein (01:28:46.138) I agree. Very, very wise advice. Dr. Jim Arnold (01:28:48.994) You know, going into signing an LOI, what what questions, you know, if you have two or three main questions that you would advise a seller to to ask, you know, to just to make sure there are no surprises, what would they be? Matt Ornstein (01:29:04.188) probably what the most important thing is, you know, what is the what's gonna happen with the compensation packages for the employees? Are you gonna leave them the way I have them? Or are you gonna be changing are you gonna be changing some things? And if you are, what are those things? Because I need to know as a selling doctor if that's acceptable to me and if that's going to be acceptable. you know. Dr. Jim Arnold (01:29:13.432) Good question. Dr. Jim Arnold (01:29:17.132) Mm-hmm. Dr. Jim Arnold (01:29:23.053) Mm-hmm. Matt Ornstein (01:29:33.734) to the people that will be affected. you know, most of the sellers that we work with, they really do care about their employees a lot. And they want to make sure the employees are well taken care of and that at post sale they're they're gonna have an opportunity to either keep their current comp package where it is or have opportunities for increased compensation. So that that's really, really important. you know how long Dr. Jim Arnold (01:29:35.884) Mm-hmm. Dr. Jim Arnold (01:29:45.802) Yes. Dr. Jim Arnold (01:29:57.559) Yes. Matt Ornstein (01:30:02.682) The buyer would is expecting the selling doctor to stay on. What are the expectations of the buyer for the selling doctor? What do you expect me to do? What are my responsibilities? What are what are you expecting from me post sale? and then, you know, what's the breakdown on the compensation for the value of my practice? Like how much cash am I getting at closing? Dr. Jim Arnold (01:30:07.266) Mm-hmm. Dr. Jim Arnold (01:30:15.81) Yep. That's right. Dr. Jim Arnold (01:30:28.194) Yeah. Matt Ornstein (01:30:28.218) How much equity are you requiring me to roll over, if any? You know right. Dr. Jim Arnold (01:30:31.87) Mm-hmm. And what numbers do I have to keep? And gosh, what what can I make more money? Like if we grow 20%, you know, things like that. And I think, Matt, so often I I've seen too many times where the buyers and sellers just aren't on the same page post-transaction. You know, buyers got a lot of money or sellers got a lot of money up front, and they're not necessarily as motivated to keep performing and that sort of thing, or you know, the buyers You know, make all these promises and then post sale, it's like, no, things kind of change, you know, gradually over time. Just I I think the more communication there is, the, the better. The more that the brokerage can kind of mediate those conversations and and frankly, hold the buyer's feet to the fire after the sale, you know, make sure that post transaction, all the promises that they made to you and to the seller, you know, are are are carried out, right? Matt Ornstein (01:31:25.128) one hundred percent. Yeah, one you you you have to get all that ironed out. and that's another reason why you really do need a great attorney when you're selling your practice or group. You know, I you know, find a great one. I I love Daikoma and Brian Caleo. They have an incredible team over there at Daikoma and they know everything that needs to be put in a in the final contract you know, when you sell. You don't want to Dr. Jim Arnold (01:31:26.957) Yeah. Dr. Jim Arnold (01:31:33.486) Mm-hmm. Dr. Jim Arnold (01:31:49.294) Mm-hmm. Matt Ornstein (01:31:52.93) just hire like the attorney you use to do your will, right? Or or to write up business contracts or your real estate attorney. Like, are you kidding me? I mean, spend the extra money on a on on an attorney or a firm that has very, very deep bench strength in dental transitions and transactions. Dr. Jim Arnold (01:32:00.599) Disaster. Dr. Jim Arnold (01:32:05.613) Yeah. Dr. Jim Arnold (01:32:15.448) So important. You know, I think the I didn't have somebody like that initially. And I remember the first attorney I took it to wanted to rewrite all 17 contracts. Like, dude, that's not how it works. You know, this is basically boilerplate. And there's six or seven things that might be somewhat negotiable, but they are not going to rewrite 17 contracts. So, yeah, man. I mean, they better know dentistry, they better have done a bunch of deals, and they better know how to protect you. And also, Not to argue about stuff that you shouldn't be arguing about either, because attorneys and CPAs can create a ton of unnecessary friction just because they don't necessarily understand the playing field and industry. Matt Ornstein (01:32:54.02) Yeah. And one of the most important parts of the asset purchase agreement is are the representations that you're gonna make as a seller. And you know, the buyer's attorneys, you know how attorneys are. gosh. Yeah. So, you know, the on the buyer side, the buyer's attorneys will try to put in, you know, as many representations and warranties as possible that are Dr. Jim Arnold (01:32:57.772) Yeah. Dr. Jim Arnold (01:33:08.462) I married one. Matt Ornstein (01:33:23.08) often can be very hazardous to the seller and unnecessary. And then and then if any of those reps and warranties are breached, all that holdback could be millions of dollars just down the toilet. Dr. Jim Arnold (01:33:28.109) Yeah. Dr. Jim Arnold (01:33:36.342) On a technicality or yeah. Matt Ornstein (01:33:37.7) Yeah, so you've got to have an attorney that knows like what rep and what reps and warranties are legitimate, being able to go over that information with the seller and say, look, you're representing this to the buyer. Are you a hundred percent sure that that this is accurate and that you're gonna be able to maintain reps and warranties going forward? And if you're not, then we need to just be completely honest here and rep and warranty what you know you're capable of doing and delivering. Dr. Jim Arnold (01:33:42.84) Mm, yeah. Dr. Jim Arnold (01:33:56.61) Yeah. Dr. Jim Arnold (01:34:08.046) Absolutely. You know, man, I I gotta say, I've really enjoyed this conversation. You know, I you're a you're a true pro and just a just a great person. And I just I want to reassure you to just have a couple more questions. I'm not gonna keep you on for like another two hours, but I but I could. I could really easily. You know, you guys are kind of untraditional, you know, in the way that dental pitch does things. I I think when you've got thousands of brokers out there that, you know, people start to think, you know. Matt Ornstein (01:34:19.142) You take your time. Take your time. I'm in no rush. Dr. Jim Arnold (01:34:35.202) People think a dentist is a dentist is a dentist. It's just a commodity. And I think that a lot of times people think the same about brokerages too. So, you know, what what makes the dental pitch process unique and that doesn't happen a traditional brokerage process? Matt Ornstein (01:34:50.824) we we run a very efficient organization operationally and Dental Pitch Brokerage I would consider it a white glove boutique brokerage firm, but also an advisory firm. So w we don't have this like rushed attitude of we have to sell this help sell this many practices or groups this year. and we Dr. Jim Arnold (01:34:57.09) Mm-hmm. Dr. Jim Arnold (01:35:06.531) Mm-hmm. Matt Ornstein (01:35:17.85) You know, gosh, probably the majority of the inbound r calls and referrals we get, we'll we'll get to know the dentists and take a look at their their businesses. And we're very open and honest with them and say, listen, if you do these three or four things and we can connect you with the right people to help you get there, you can get an extra five million dollars on sale, an extra two million just by, you know, making a few adjustments over the next six to twelve or eighteen months. We don't even charge anything for that. And, you know, our belief system is the majority of those dentists will come back to us later and say, Hey, we really appreciate the insight and the help. And you were right, and we'd love you to re represent us. so we would rather help a practice that has room to grow and make sure that the the dentist gets the number that they Dr. Jim Arnold (01:35:51.885) Yeah. Matt Ornstein (01:36:15.076) are capable of getting and need an exit, even if it even if it delays a process twelve to twenty four months. I just take the long term view on that. Dr. Jim Arnold (01:36:17.432) Yeah. Dr. Jim Arnold (01:36:23.626) Agreed. Yep. I I think it's so important. And and I I mean, look, I have seen brokers who kind of try to rush people to the table as fast as they can and collect their you know, their commission, all that sort of thing. I think most brokers are are pretty ethical and pretty good. But look, man, to your point, when you have the knowledge and you have the connections and you have the resources to help them increase the value of their practice or group, it's like you gotta do it. You know, you gotta do what's in their best interest. And then that goes back to the sellers and making sure they start early enough and they're not in a desperate situation where they have to sell tomorrow to where they have that flexibility to, you know, take that great advice. Matt Ornstein (01:37:05.008) Yeah. I mean, we had one group that it had a huge number in uncollected receivables. And the and the doctor was ready to sell and we're like, wait, listen. And we have great relationships with our buyers. I said, look, we know the company that can help you, you know them too. and we said we can help, you know, get your receivables collected quickly. Dr. Jim Arnold (01:37:13.643) Mm. Dr. Jim Arnold (01:37:20.706) Yeah. Dr. Jim Arnold (01:37:25.474) Yeah. Matt Ornstein (01:37:32.388) And that'll flow right down to your adjusted EBITDA. And you know, you're gonna you're gonna get, I forget the exact number, but like you're gonna get another million and a half dollars on sale. And you know, it's like I think it was like a six month delay, and the seller got like an extra million and a half dollars, and the buyer was happy to pay for it. Like, hey, that's fine. We're happy to pay this multiple on whatever your legit EBITDA is. so Dr. Jim Arnold (01:37:42.37) Wow. Yeah. Dr. Jim Arnold (01:37:51.197) yeah. Absolutely. Dr. Jim Arnold (01:37:58.274) Yeah. Matt Ornstein (01:37:59.866) I think that's one that's, you know, something that separates Dental Pitchburgh and and Elijah Desmond, who's also the founder of Backstage, which I I love. and if if you want Yeah, I mean if if you if we have a couple of minutes to talk about Backstage, that would be amazing. But Elijah, he just he is a pure human being. I have never met anybody who has a higher level of ethics and kindness and abundance mindset that Elijah has. Dr. Jim Arnold (01:38:09.856) You and me both. Dr. Jim Arnold (01:38:15.51) Absolutely. Matt Ornstein (01:38:30.512) So I mean Elijah's attitude is let's do what's best for the clients that we have, which are sellers, to help them maximize their exit value, even if that means not being able to sell them for six months or 12 months or 24 months. Because for most dentists, their most valuable financial asset is their practice or their group. Dr. Jim Arnold (01:38:48.707) Yeah. Dr. Jim Arnold (01:38:55.63) Absolutely. It's gonna be the biggest financial transaction of their lives in most cases. Yeah. Matt Ornstein (01:38:56.485) May it work. And they put in some cases, you know, a decade or two decades or three decades of their life into building the value of their asset. So you want to make sure that that exit is very, very meaningful and can accomplish your goals. Right. Like if if you need if you can sell now or delay twelve months, but delaying 12 months gets you an extra three million dollars, which then gets you the number that you need to retire. Dr. Jim Arnold (01:39:09.037) Mm-hmm. Dr. Jim Arnold (01:39:16.695) Mm-hmm. Matt Ornstein (01:39:28.88) Or live r you know, live your lifestyle with no stress for the rest of your life, well, that's that's a smart decision to do. Dr. Jim Arnold (01:39:29.048) Yeah. Dr. Jim Arnold (01:39:38.094) Well, and it's incumbent upon us as as brokerage or brokers to help them, you know, make those good decisions. because at the end of the day, it's all about again just creating that value, helping protect them, making sure that they don't just get the best offer, but they get the best partner and their quality of life is fantastic after the deal is done. Matt Ornstein (01:40:01.648) Yeah. Most of you know, most doctors that I know that have sold are much happier, much happier post sale. Most of them. The majority of them. Dr. Jim Arnold (01:40:13.836) Yeah. No, absolutely. And and again that that comes down to you know, how how the deal was put together and with whom the deal was put together and all that good stuff. Matt Ornstein (01:40:23.232) So let's on the assumption that the deal was put together well, the doctors got properly compensated based off their EBITDA, and the buyer was a great operational and cultural fit and and really really pleasant to work with, in that scenario the doctors are much, much happier. Dr. Jim Arnold (01:40:31.352) Yep. Dr. Jim Arnold (01:40:42.4) No no question about it. Matt, what what question do you wish I'd asked that I didn't ask? Matt Ornstein (01:40:47.132) I'd have to think about that for I I mean we've covered I we've covered so many beautiful, beautiful topics here. I think you've really touched on everything that's important. You're a great interviewer. Dr. Jim Arnold (01:40:52.238) Ha ha ha. Dr. Jim Arnold (01:41:01.976) Good. well, I I appreciate you're a great conversationalist. And I knew that you would be because you have so much knowledge and and experience in this space. And so, you know, I again I appreciate what you're doing for the industry, you know, with dental pitch and with the books you've written and with Oak and of course with your involvement with Backstage, you know, abundance, kindness, and fun. You know, that's what it's all about. And when you have shared values, then you can do great things together. And you know, that that's certainly my commitment. I know it's your commitment and hopefully our conversation you know, helps some dentists out there, you know, either find the resources they need, have the knowledge they need, or just reassure them that that they're in the right industry and if they come to either one of us, we're gonna take good care of them. Matt Ornstein (01:41:49.804) Absolutely. I I think I'd like to close just with you know this statement that if another dentist has done it, you can do it too. I promise you. And if and it's okay to not know how to do it, just find the right group of people that can, you know, teach you how to do it. Because if one person has done it, you can do it. Dr. Jim Arnold (01:42:02.827) Amen. Dr. Jim Arnold (01:42:18.37) Yeah, absolutely. Matt Ornstein (01:42:19.066) I mean, I mean, you if you're a dentist, you're a smart person. Like you're already in the on the intellect side in the, you know, top one percentile. Not only did you graduate high school, you graduated college. that puts you in the top only twelve and a half percent of people in the United States have a college degree. Then you go on and get your master's degree in, you know, I'm not a dentist, so I I don't you're is it a doctorate in DDS. Dr. Jim Arnold (01:42:29.324) Yeah. Matt Ornstein (01:42:48.506) Doctor of dental surgery. But I mean you're Yeah. But I mean to to graduate and become a dentist. I mean, in my mind, you're in the top like one percent of the top one percent. You have to be very smart. You're very, very smart. And if you can if you can even just even graduate dental school, of course you can build and grow. Dr. Jim Arnold (01:42:49.57) D D S or DMD, yeah, either one. As it's always a debate about which is a better title. They're exactly the same. Dr. Jim Arnold (01:43:00.621) Mm-hmm. Dr. Jim Arnold (01:43:08.888) Mm-hmm. Matt Ornstein (01:43:17.684) either a single practice or a multi-group practice that has incredible financial value. And the things that that you're not you know, the the KPIs that you're not hitting, you know, in the top percentages, other other doctors know are crushing it. There's enough doctors out there that are doing really well with all the KPIs that really matter that, you know, you can find them either through a consultant, through a group like Backstage, just through your friends. Dr. Jim Arnold (01:43:39.256) Yeah. Matt Ornstein (01:43:46.16) Right. You can watch podcasts. You can go on live streams and you can learn, like, hey, I'm having trouble with this. And all you have to do is talk to one or two other doctors that are just killing it in that area. And like, well, what are you doing? Like, this is what I'm doing. All right, well, this is what I'm doing. What do can you just tell me? Like, what do I need to do? I found people in the dental industry to be the most kind giving people I've ever met. They're happy to share information. Dr. Jim Arnold (01:44:13.858) You know, Matt, that's certainly been my experience. You know, as we both know, dentists usually come out of school. It doesn't matter how smart you are. If you're not getting training on leadership, communication, and business, you come out, you know, with a lot of questions. And, you know, the best thing you could do is find mentors and you know, people have done it already as early as you possibly can in your career. And that's why I started Foundation Dental Mastermind. You know, I've got 25 niche experts who some have been mentors to me over the last 20, 25 years. And they've given me so much great advice and we've had such great conversations and to be able to share that with the industry and with other dentists who need that same kind of guidance is just huge. And then as you get closer to being ready for a transition, reach out to one of us or or do your due diligence and find another great broker and you know, just make sure that from the time you graduate to the time you retire. You know, you find that support network. You find those people who have done what you wanna do, find those people with whom you have a lot in common and shared values. And you're not only gonna make more money, but you're gonna enjoy your profession, enjoy the industry that much more. Matt Ornstein (01:45:21.04) Yeah. And occasionally, you know, I I mean, if if you ask another dentist that's doing really, really well and they're in your market, they may not be willing to share information with you. But if they're out out out of your market, they're in another city, another state, whatever, they're more than happy to share all the information that they have because you're not a competitive threat to them. Dr. Jim Arnold (01:45:48.552) Absolutely. So Matt Ornstein (01:45:49.53) And everybody I've bumped into, like at dental conferences, I've only been in dentistry five years really. But, you know, I I'm pretty fearless. I'll walk up to anybody and introduce myself and say hello. And I found everybody to be very, very forthcoming and and happy to share information and guidance and and advice. it's it's very refreshing because it's not like that in real estate. Real estate's a very hyper competitive space. Dr. Jim Arnold (01:46:17.065) Mm-hmm. Matt Ornstein (01:46:17.978) And the people that are doing well in real estate, man, they don't tell you anything. They won't share anything with you. It's the craziest thing. Dentistry is the opposite. Dr. Jim Arnold (01:46:27.752) It is, Matt. You're right. And and you know, I say this all the time to people, but when people from outside of dentistry get into dentistry, they never leave. Like they find this community of amazing people who are so generous and and they they just get into it and they never leave. And if they do, invariably they end up coming back. And it to every dentist out there who feels like they're alone on an island, they're dealing with all these pressures and all these stressors and all these problems that they think it's just them. No, man. We're all going through the same things and you're not alone on an island. There's always support out there. Find that community. Find the people who are going to reassure you, help you get through those hard times. Or if anything else, maybe we commiserate together on the things that we can't do anything about. But nobody out there is alone. We're in the best industry, I think, in the world. And and Matt, welcome to it, man. Five years in and you've already made a huge impact, my friend. Matt Ornstein (01:47:22.918) Well, I I've really enjoyed it and I I I I truly love all the people that I've met. It's just it's such a beautiful, beautiful industry i i in every way. And it does kind of annoy me that, you know, again I'm not a dentist, but you know, dentists don't get the professional respect to the level that they deserve it. And I again I go back to if you have oral disease It's impossible for you to be healthy. It's impossible. It starts right here. And you know, we're capped with these, you know, crappy insurance reimbursement rates. And you know, so-and-so's a dentist versus a you know, a brain surgeon, right? Or this or an orthopedic surgeon. If this is not healthy. It is one hundred percent impossible for your body to be healthy. It's everything starts in the mouth. And you know, I hope I hope I hope that gets recognized you know, as as we move forward in time. Dr. Jim Arnold (01:48:30.21) You know, Matt, I think it is on a couple of different levels. I mean, number one, you know, there there are groups out there and dentists who are really doing major movements in the oral systemic connection, connecting dentistry and medicine, all the things that should have happened decades ago. We are finally taking ownership of those things. And those things are so critically important to everybody. Because you're right, health starts in the mouth, it impacts the entire body. body. And the sooner that we as an industry, you know, like realize that across the board, just the better things are going to get. And then on the other side, you know, I think that there are people in the community. And I look at a lot of dentists that, you know, and I social media has a big part of this. You know, dentists are very active out there and doing all these things. And people are getting to know them as as as people and not just, you know, stuffy dentists and lab coats and all that sort of thing. And so I think you know, again, it's an exciting time for for all of us. And I think that, hey, if you if you need to get great information, if you need to you know, find a resource that's gonna help you make the most of your practice, download Matt's books. I mean, I think it's a great place to start. Download his books, find mentors, talk to people who are doing the things you want to do, and and it's all gonna come together. So hey, man, thanks so much. I really enjoyed the conversation, Matt. Thanks for giving me so much of your time. Matt Ornstein (01:49:52.016) Yeah, I did too. It was awesome. Thank you, Jim. Dr. Jim Arnold (01:49:54.41) No, my my pleasure. So, you know, one of the themes that came up repeatedly today is that value isn't created at the closing table. It's creating years before the closing table. So do what you can today, even if you're not selling for another five or 10 years, to figure out what your practice is worth, how you can make it worth more, how you can make more money every step of the way, how you can enjoy your profession more. So to everyone listening, thanks for joining us on the Foundation Dell podcast. We'll see you again next time. Matt Ornstein (01:50:27.153) No.