How to Develop an Exit and Transition Plan for Your Dental Practice

Larry O'Toole Yosemite Associates www.yosemiteassociates.com larry.otoole@yosemiteassociates.com 940.874.0787

 

The Transcript

Art Wiederman, CPA And hello, everyone, and welcome to another episode of The Art of Dental Finance and Management with Art Wiederman, CPA. I am Art Wiederman, CPA. It's nice to have you on the podcast on this beautiful Southern California October day.

It's Friday, the 9th of October, we're date stamping all of these podcasts, as we've always done since the COVID-19 pandemic started. My goodness, it's what is it? We're approaching seven months now. It's crazy how much time flies. And I have a real treat for you today. I may have mentioned on the podcast that I am also, besides all of my affiliations with the dental profession, I also participate in a wonderful monthly breakfast networking group called the Ellermeyer Connect Group. And I've had Bill Ellermeyer and I've had Dennis Kushner. And I've had a couple of other folks, Brian Connor on the podcast. And one of my friends that I've made from this group is a gentleman by the name of Larry O'Toole, who you're going to meet today.

Larry, quite frankly, is one of the smartest guys I've ever met. He is a person who has spent his life in corporate America, helping businesses turn around, helping businesses plan for exit strategies. He came and gave a wonderful lecture to our team at our CPA firm. And he gave me this great, great saying, he says Art, we need to figure what good looks like. And we use terms like euphoria and getting ready for business. And we're going to talk about what you need to do in your dental practice. And again, you know, with what Larry does, it can apply to a dental practice, a manufacturing business or anything. But his insight is going to be really, really valuable.

And we're going to talk about his five different steps that you should be taking and a whole lot of other things. I mean, again, I've listened to Larry speak several times and he's just off the charts. And you know what? Whether you're a dentist or whomever you are, you would benefit from listening to him today. And we'll get to Larry in a moment.

Just want to give you a little bit information again. I want you to go to www.DecisionsinDentistry.com. Go to a go to that website. You can find all of our podcasts there and look at the great continuing education courses. They have a special deal where you can pay one annual fee and have access to over 140 continuing education courses. If you want a complimentary consultation from one of our Academy of Dental CPA members, go on to the website www.DecisionsinDentistry.com and they will connect you. If you check the box, they'll give you the information and one of our members in your area will call if you're looking for a dental specific CPA anywhere in the country.

I'm in Southern California and keeping my fingers crossed tonight. Again, they're never gonna let me in the state of Florida again. I know that because the Lakers lead the Miami Heat three games to one and game five is tonight. And I'm keeping fingers and toes crossed that we can win our tenth championship. But we're in Southern California. If you have an if you're a dentist and you don't work with a member of the Academy of Dental CPAs, shame on you. You should be calling one of them right now. I mean, yearend tax planning is coming up. Go to our website www.ADCPA.org and click on the members list and you'll find the member in your area.

Also, remember that if you are looking at a Research and Development income tax credit, our group at Eide Bailly has got you covered. We've gotten dentists, tens of thousands of dollars of tax credits. And if you're doing something special, some new innovations, some new procedures, new materials, just anything new that you're doing in your dental practice, maybe some great CE you've done and you've implemented some new stuff in your practice, then, you know, give us a, go onto the website www.EideBailly.com/dentalRD. Read the articles, fill out the questionnaire and they will call you. Our group we'll call you. Heidi and Joe and their team will call you and see if you qualify for this credit. That could be tens of thousands of dollars and we can actually go back three years and get you some money back.

So I do have one update before I get to Larry O'Toole, my guest. And as we told you, this PPP thing just keeps on changing. You know, it's the gift that keeps on giving, folks. I'm telling you, every time I think I know the rules and I'm done with it, I'm not.

So two days ago, the SBA put out interim guidance and basically said that if you have a PPP loan that is under 50,000 dollars. Now, remember, you will be able to file a very special simplified three-page form called a Form 3805S.  So we have the 3805 for the complicated businesses like the ones that Larry is probably working with. We have the 3805EZ. And now we have the 3805S form. And that form basically is going to be if you have less than 50,000 dollars in a PPP loan. Now if you have affiliated companies and you have more than two million and all your affiliated companies, which I doubt is any of you listening, then you can't use this form.

They are eliminating the full-time equivalent rule and the 25 percent reduction in compensation rule, which was a big deal for people who sold their businesses. I had two doctors who sold their businesses, had less than 50,000 dollars, and they couldn't file for forgiveness because their bank wasn't ready yet. And we were concerned about losing forgiveness. Well, now, I don't think we have to. So check with your bank, make sure that, you know, if you're going to file for forgiveness and you have less than 50,000 dollars in PPP loans, that you use this form, you will have to provide payroll information and you'll have to provide payroll information. But that's about it. And it's a very, very short form. So be aware of that. That's good news.

And we're hoping that, you know, I mean, again, the update is, you know, again, it changes. At first the White House and the Republicans were not going to negotiate on a stimulus. Then President Trump said, well, we'll negotiate on a piecemeal with the airlines and the small businesses. And now it sounds like we're back to full negotiation again. And, you know, the best thing for this country would be, as much as I hate to see us going more and more into debt, I mean, they desperately need this stimulus. It will help everyone. It's got long term effects, which we're not going to get into today. But there's a lot of people that are hurting out there. So let's keep our fingers and toes crossed that they do pass a stimulus. I will stop what I'm doing and report it to you.

So anyway, I want to get to my good friend and guest today, Larry O'Toole. Larry, again, as I told you, I met Larry through the Ellermeyer Connect Group, which is a monthly breakfast group that I work with. Larry, his obsession is the challenge of navigating uncertainty to creating growth in businesses.

He says business growth and growth in business worth. He's been, you know, for over 20 years, CEO of manufacturing service companies. I am going to let him tell you a little bit about himself. He's worked with companies like Black and Decker and Ingersoll Rand, smaller, privately held companies. And he's just one of these guys that when you just listen to him, he's just really smart. So, Larry O'Toole, welcome to the Art of Dental Finance and Management.

Larry O'Toole Thank you, Art. It's a pleasure to be with you and your audience. I appreciate those kind words.

Art Wiederman, CPA Well, you can send the five dollars to Art Wiederman in Laguna Beach, California. There you go.

Larry O'Toole It reminds me one time somebody asked a speaker, why do you enjoy doing any sort of guest speaking? The answer was, it's the only time I can hear nice things about myself.

Art Wiederman, CPA Well, I guess if someone introduces, and says, by the way, today, our guest lecturer is Larry O'Toole, and he's a total idiot. That's probably not a good idea, right?

Larry O'Toole Exactly right.

Art Wiederman, CPA Exactly. So before we get into our topic, Larry, why don't you give our audience a little bit about yourself. I gave him a little brief intro about you, but a little bit about your journey and where you've come from and what you do.

Larry O'Toole Yes. So I'm an operating CEO. I, as people have described me, I've walked many miles in the shoes of business owners, business leaders. So I just don't understand the concept or the theories. I've walked a mile with businesses to really know what goes on every day. And I've weaved together a nice blend of a background that includes very large corporations as well as small, privately owned ones. And there's a lot to be learned. The best of each of those. And I've built the firsthand experience in terms of what you need to do to take away the uncertainty of how to build long term value in a business. And, you know, I joke with my wife, she jokes with me, that I'm not passionate about golfing. I'm not passionate about repairing old cars. I respect those things, but my passion is I like creating value in businesses. And that's been my background and I love doing it.

Art Wiederman, CPA Well, you know, you're lucky you didn't tell me you weren't passionate about golf before I let you on here because I probably never would've let you on. But no I'm just kidding. But let's start off by talking about, you know, I mean, you and I have talked about helping business owners use the word euphoric. And my audience knows that anything over two syllables I have real problems with, but euphoric I can handle. So that when the day comes that they want to go to sell their business. And again, our dentists are, most of our dentists’ practice somewhere in the, you know, 20 to 40 years. And, you know, when you sell your business many times, they sometimes they work back. But most times, Larry, they go ahead, and they just basically finish up their remaining cases that they had already started. And then they leave, and they go off into the sunset. So talk about, share some color on why you talk about euphoric.

Larry O'Toole To me, euphoric takes it to a whole different level because, you know, you don't want to work 20, 30, as you just mentioned, even up to 40 years with your practice to reach a point where you're okay or you're satisfied with any sort of future event of your practice. You want to pinnacle of reaching the exit of some sort with your practice to make you euphoric. And it just elevates it entirely. As an owner, you work hard, investing blood, sweat, tears, money into your baby. And when the day comes that you want to get your reward after all that hard work, why would you just ever want to be satisfied. Or you know, as I see a lot of times, unfortunately, it's dissatisfied. You get a lot of owners that reach that point of exit and never mind just being okay with it. They're actually dissatisfied with the outcome.

You know, one of the other things I say to business owners is make sure you're taking the steps today to avoid ever uttering the phrase, if I could turn back time, I would have done things very differently with my business. So to me, I say to people, be euphoric and certainly avoid ever uttering that phrase, if I could turn back time. And at the end of the day, what we're talking about here, you can't hope your way to it. Hope is not a plan. You need to navigate to that euphoric outcome with a plan.

Art Wiederman, CPA Now, it's interesting, though, because I know you and I have talked about this before. Many dentists will wake up one day and say I'm done. I had one of my long-term clients. I love the guy. I've golfed with him. He's a great guy. He said to me about two or three years before, he said, you know, one of these days, Art, I'm just gonna call you and tell you that I'm ready to pop. And he called me on a December morning, and he said, Art, the pen is here. I'm ready to pop. Let's go. So I think one of the things maybe to talk about is when do you start thinking about planning for this exit? I mean, you don't just wake up and have a 50-million-dollar manufacturing business or a million-dollar dental practice on a Tuesday and say, OK, I want to be out by Thursday. Doesn't work that way. Right?

Larry O'Toole Right. Yeah. You can't start soon enough. So for even entrepreneurs that are starting up for the first time, you're making decisions in the very first days, weeks and months, the early years of your business that could ultimately set the stage or the foundation for what you hope to then one day exit and excite somebody else to take over. So my comment to business owners is, you want to start as soon as you can as early on with your practice, thinking about am I taking the right steps, building the right business that could excite somebody in the future to want to take it from me. You can't do that when you wake up one morning after working for 30 years and say, I'm exhausted. I want out in the next six months. That's the ninth inning of the game. And it's a bit late to be making any potentially meaningful changes to your business. So my comment to business owners is start yesterday. And if you didn't start yesterday, start as soon as possible.

Art Wiederman, CPA I mean, I guess, and again, I sell dental practices, Larry, so I see this all the time, and what I always tell a seller is, and I suspect it's the same in the corporate world, the non-dental world, that, you know, the person that's going to buy your business is the one that wants it the most, the one who looks at this thing and says, oh, my gosh, this is home. This is what I'm going to do. And that's kind of what you're talking about. Right. As far as the euphoria and making the business look like something that someone else is just going to fall over themselves to buy, right?

Larry O'Toole Yeah, it's a balancing act because you want to build a business that you fall over, that you're passionate for, that you love. But you also have to be wearing another set of glasses, which is, wait a minute, if I want to exit this someday to another, to a third party, I need to be thinking about how to make them excited about it as well. So, you know, one of my last businesses that I was the CEO of, that we sold, we regularly, when I say we, me and the key members of my team, we would regularly look at business issues.

We'd look at them wearing our pair of glasses, and then we would say, alright, let's take our glasses off. Let's put on the glasses of a person or a company that we may want to attract to be excited about this business. How would they look at the outcome of this decision that we're making? And it facilitated very effective internal dialog so that we didn't just make decisions through our filter. We also had an idea of what that third party filter would be, because at the end of the day, if we can't excite them for taking over our business, then either they won't take it over, or if they do, they will try to get as low a purchase price as they can, which then impedes our ability to be euphoric.

Art Wiederman, CPA Right. And when we look at dental practices, Larry, you know, you don't have work in process. You don't have inventory. You have the bottom line of net profit. And this is why it's so important, folks, you know, and you never know when you're going to exit. I had a call from a 34-year-old dentist a couple weeks ago who just said, you know, Art, I'm not feeling the love of living in Southern California anymore. I don't like the schools in my area. We're moving to somewhere in the northwest. I'm not going to say where, because it's way too small of a world. People know everybody. But you got to be ready to do this at any time. And so, you know, I know I hear all the time - you know, my business is unique because I'm a dental practice and they don't believe that those from the outside world can help them build their value. How would you respond to something like that?

Larry O'Toole  My response is certainly each type of business has unique elements to it. There's aspects that need to be understood and respected as it relates to building that longer-term business value or business worth that, I call it. But the building blocks, or I call it campaign, they're the same. So I don't care if you make widgets, if you provide services, if you're a dental practice, the major building blocks of how to take your business from where it is to today to a future state of what good looks like, that can make you euphoric. Those building blocks are the same. Now, within each of those building blocks, there are certainly nuances to respect, but the blocks themselves are the same. And today, you know, the businesses that I'm working with at this next phase of my life, they're all over the place in terms of types of business, because a good campaign for building the value of your business, it's agnostic to the industry. They're just good disciplines to have in place.

Art Wiederman, CPA I mean, you know, for non-dentists who own businesses. I will tell you folks that, and Larry, maybe you can chime in on this, of course, is I think that there's a lot of people out there who run businesses who know their product or their service really, really well, but who maybe don't have the organizational training that you have, that don't have the vision of what they want their business to be. And they're very set in their ways. So I don't know if selling a dental practice, I mean it's a different model. It's a different set of numbers. It's a different valuation. But I don't know if it's that much different. Talk about the owner of a business and the mindset of the owners that you've worked with over time and maybe what's a bad mindset? What's a good mindset? Something like that.

Larry O'Toole So I tell, I give guidance to business owners and I say the following. There's really two mindsets that are out there. And you need to really determine which one is going to be best suited for yourself so that when you are thinking of exiting the first mindset is this - exit preparation. The owner that has the mindset of exit preparation, that is the individual who has a definition of when I wake up one morning, 20 years in, I'm going to look to sell my business and I'm going to take the final steps of preparing my business to do that. Maybe I'm going to find a broker. Maybe I'm going to call a few folks, tell them my business is for sale and I'm now going to sell my business. That's the exit preparation mindset.

The second mindset is the exit optimization mindset. The exit optimization mindset is the owner who says, I do realize the power of the decisions I'm making today with my business. And I am thinking about these years in advance of my actual exit. So I'm going to make sure that I am building a business, building the right team, I'm getting the right customer base, I'm getting the right profits. And I know that it could take me years to do that. But I'm thinking about how it all comes together a puzzle so that I can optimize it when I go to exit it.

And too many business owners have the exit preparation mindset, which is that ninth inning step. And the problem is that's too late in the game to be really making any meaningful changes that you might need to make in order to excite an investor or a buyer of your business. So I always encourage owners please get in the mindset of exit optimization.

Art Wiederman, CPA That's really, really good advice. And, you know, when we look at a dental practice, Larry, I mean, there's a couple of things that we tell people to do in the realm of what you're talking about. Obviously, you know, but what does a buyer want? What does good look like? It looks like a good, modern dental office. If you have 30-year-old chairs, I mean, those old and I'm not promoting any company. Those old Belmont dental chairs are tried and true. But, you know, if you don't have the newest equipment and some of the newest software, I mean, I've actually sold dental practice, Larry, for people that still have pegboard systems, that's just unbelievable to me. But you've got to be ready for this now. I mean, you never know when a sale event is going to happen. God forbid you get disabled. God forbid you know, you wake up one day and your spouse says, you know, my job is moving to the East Coast and we're moving, right? Yes. Aha. So that that will also happen and it. Yeah. Go ahead.

Larry O'Toole That's a great point, Art. And the other thing I say to business owners is the reason you want to have the mindset of exit optimization is you always want to know that your business could be in a position of supporting a successful or even a euphoric exit for you because things are out of your control could it happen such as your spouse walks in one morning and says, hey, can we think about this next chapter of our life and getting it started sooner? Or you do wake up one morning and you're exhausted.

Or what I see frequently happening is the phone rings and somebody says, hey, would you consider selling your business to me? And I say to business owners, why would you not want to be in a position of being ready to at least entertain a possible exit because the market may want your business. So it may be somewhat up to the market as to when your optimal valuation could be there. So the exit optimization mindset is you should always be ready with your business in the event that even you personally have a life triggering event, or somebody knocks on your door with a checkbook and says, I'm looking for a business like yours.

That's a window of opportunity you may want to evaluate. I've seen business owners that say, you know, one of my regrets was I missed my window for exiting. You know, I had people calling me several years ago and I wasn't ready, but they were ready. And I wish I had entertained it back then because I think I might have done better. So it's for that reason I tell business owners, you should always want to be ready to consider an exit if someone else is willing to open their checkbook with a high price.

Art Wiederman, CPA And it's interesting you mentioned that Larry because in the dental world, we have these groups called dental service organizations or DSOs. There are two or well, there's probably five to 10 very large ones that own 500 to 1000 dental practices across many states. And they are aggressively seeking dental practices to purchase. And I've had, I mean, we have a client right now in the southwestern United States who's calling me saying, well, they're knocking on my door Art and I'm tired. I'm tired of doing this.

And, you know, so that that's the situation where you want to look at, you know, being in an optimum situation, especially some of the specialty groups out there some of these DSOs are writing some very, very nice checks. And, you know, again, that's a whole ‘nother conversation. We've got a couple those at least one of those companies is going to be coming on the podcast in the next couple of months and we are going to talk about that.

Larry O'Toole That scenario plays out in lots of industries where companies look to consolidate, they look to roll up businesses either nationally or even just in a geography, that happens in every industry. And you don't want to be an owner that says I missed a window where I could have gotten an optimal value for my business. I waited too long. So every business has a window of opportunity for exit. Some maybe over the form of decades. Other businesses, I know they've only got a window of 5 or 10 years that they need to exit if that's their plan.

Art Wiederman, CPA I've talked to some people in dentistry, Larry, and there are people that say the window is 5 years. This is what I'm hearing from people, that this is not an edict from Art Wiederman the god of dental practice transfers, not not in the least. But this is what people in the know are telling me. It's interesting. So you've also, Larry, you've seen business owners that they've done really well, and they've met that euphoria. Probably many of them who have worked with you when they sold their businesses. But you've seen others that are disappointed. So, you know, at a high level, what's the difference between these two groups?

Larry O'Toole So I can sum it up in three statements and then I'll add some color to each one. The first one is understanding the difference between exit preparation and exit optimization, just as we talked about. That is one difference I see between those that had a euphoric exit, those that did not have a euphoric exit. Second is, the difference between those two groups is identifying what good looks like at the end of the journey and even set more tangible targets. And then the third difference that I see between those that had euphoric outcome and those that didn't is the ones that were euphoric, understood what it would take to excite the future acquirer of their business or of their practice. So the three major differences I see between the two groups are knowing the difference between preparing and optimizing. Knowing how to set and define what good does look like for you as a target long term. And then thirdly is how to excite the future acquirer. So those are the three big differences that I see between the two types of owners.

Art Wiederman, CPA And, you know, it's interesting, too, about, you know, this is not just for, you know, if you're under age 60. Don't turn this podcast off. I will tell a personal story. I don't think you know this story, Larry, about me. But when I was about 40 years old, I had what my wonderful wife of 35 years, Lynne, absolutely nailed on the head, my midlife crisis. Now, my midlife crisis was that I didn't want to be a CPA anymore. I had done enough. I had had enough.

And I had an opportunity. And I connected with a radio producer and I was trying to put together a nationally syndicated radio show. And I made an investment in that. And I was done, and we were very close. In fact, I wouldn't be here if the 9/11 terrorist attacks didn't happen because we were very close to having a 10 station deal with Citibank funding it. And I had a book that was written that Simon and Schuster Random House were ready to publish called The Art of Finance at that time.

And the reason I bring that up is not to talk about me, but to say you could wake up one day and say, I don't want to do this anymore. And we've had clients over thirty-six years. I mean, how many business owners, Larry, do you get the phone call, I don't want to do this anymore. I'm 38 years old. I don't want to do this anymore. I want to do something else. Do you get that?

Larry O'Toole Frequently and accelerating. Meaning COVID, or as I fondly refer to COVID as Corona-geddon. It is absolutely creating exhaustion amongst business owners, either because of how COVID has impacted their business top and bottom line and because of all the labor challenges that it has arisen that has brought up. I'm seeing a new level of owner exhaustion, new level, and I believe over the next one to two years we're going to see a continued acceleration of people selling their businesses because they are exhausted from it. And Art, can I go back for a second? Because I want to add a little bit of color.

Art Wiederman, CPA Go ahead, please.

Larry O'Toole I want to add a little bit of color to a couple of items. I had mentioned those three differences between a euphoric seller and a disappointed seller. The second one I mentioned was make sure you define what good looks like. And what I want to add is tangibly define that for yourself. You know, I'll meet with business owners and I will say to them, what does good look like for you at a future event with your business? And what I will often hear is, well, Larry, I want to exit one day, maybe in the next several years. I'd like to get a good value for what I've built. I want to take care of my team and maybe something else.

And I'll say to them, when you achieve that, will you be euphoric? And they across the board, they pause, and they go, well, now that you ask it that way, I'm not sure. Why aren't you sure? Because it depends on how much I get for my business. Exactly. So if you're going to think through it, I encourage you to think through what does good look like with your practice? Be as tangible as possible, even identify how much you'd like to get for your business one day and that it will help you determine how audacious you're thinking your planning needs to be from where you are today.

You know, I've seen business owners that truly do define tangibly what good looks like to them. And they realize the gap from where they are today to where they want to be tomorrow is a huge gap. Well, that just means that your strategy or plan has to be a little bit more audacious. But I've also seen other business owners that realize the gap isn't that large and they're closer to it than they perhaps thought. So I really encourage business owners don't define what good looks like to you in the future in a vague or nebulous way. Try to be as tangible as you can with it.

Art Wiederman, CPA That just makes all the sense in the world. Now, I know you were kind enough. And we chatted earlier that if any of our doctors might want to have a question or maybe send an email or something like that, you'd be kind enough to give out your email address maybe.

Larry O'Toole Absolutely. larry.otoole@yosemiteassociates.com . And it is Yosemite. Just like the great national park out here in the western U.S.

Art Wiederman, CPA And we'll have that in the show notes on the podcast. And if you want to get hold. I mean, again, like I told you, I bring the best on to this podcast and just sitting there. I couldn't. I took copious notes when Larry came in and started talking about what, I mean, what good looks like. It just makes all the sense in the world.

And doctors, one of the things you might consider doing, again, whether you're 35 or 45 or 55, you know, if you, or 65, if you're five or 10 years away, bring in a dental consultant and just say, listen, I want this thing operating in tip-top condition. And yeah, it's going to cost you some money. Don't worry about it because you're going to get it back in spades from the enjoyment of your dental practice, from the value that you're going to get from your dental practice, building a dental team. All these kinds of things you want to go ahead and do. So, Larry, I want to.

Larry O'Toole Sorry. Can I. Can I go back to that piece of color? Because the other one that I had mentioned, the difference I see between those that are euphoric and those that are disappointed was I mentioned, please identify and understand how to excite your future buyer. And a common question I get from people is, OK, Larry, how do I figure that out? So if I have a dental practice today and I agree with your concept that I should have an idea now of what people and what an inquirer in the future might get excited about, might place high value on, how do I figure out what that is? So I just wanted to give a couple of tips on how you might go about doing that.

Art Wiederman, CPA Please do.

Larry O'Toole So the first one is just keep an eye in the market around you for businesses, practices like yours that you know have been sold, and see what you might be able to learn about that business that was acquired. What was, how big was it? What was the geographic location? What some of the services that they offered.

Larry O'Toole Because by doing that, you may be able to start to see a theme of what other firms, what their practices are doing that you might be able to learn from. The other thing I recommend to you is find an owner of a dental practice that has sold in the last three, four or five years. Have a cup of coffee with them. Chat with them about their journey. What would they have gone back and have done differently when they exited and sold to a third party?

What did they learn at that third party was looking for that either they were glad they were ready for, or they weren't ready for, and they're telling you, hey, you should be ready for this because trust me, they place value on it.

But that's the second tip you can take. And then the third one I say to people is there are brokers that work in your space. So there are certainly brokers that work in the dental practice space that buy and sell businesses all day long. There's no downside to reaching out, introducing yourself and saying, hey, I'm not for sale today, but I'm building a practice. I may be for sale several years down the road. I'd like to pick your brain a little bit. Hear what you're seeing buyers of businesses like mine are looking for. And, yeah, maybe let's build a relationship, because when the day comes that you do want to exit, maybe you've already built a confidence and a relationship with a broker that could help you. And along the years, that broker actually gave you some good insights in terms of what acquirers were looking for.

So I don't just want people to feel theoretically saying, yeah, that makes sense for me to understand. I should know how to excite a future acquirer. No, I want to help with the practical steps to take to actually be able to identify how to excite an acquirer.

Art Wiederman, CPA And Larry, I'm a dental practice broker and I've done that. And if you're in southern, you know, if you're in California, feel free to call me again. My number is 657.279.3243. We can, walk through this. I've had many, many dentists and some I've chosen to list with their practices with me, some have not. That's fine. Doesn't matter. Well, I'll basically say, well, you know, you've got to clean this up and we need to make this a little better. And tell me about your team and tell me about your lease. Tell me about your facility, all these things that are really, really important. And Larry makes a great point about talk to people. I was telling one of my friends the other day about my late father, my late stepdad, Irving, who was one of the smartest guys I knew, and he always said, talk to people, talk to people, talk to everybody, talk to them. Talk to them at a line at the grocery store, six feet away, of course. Talk to them wherever you are, and you know, you never know who you're going to meet.

Larry O'Toole The other one I'll mention because you can help people with it is it's one thing to get somebody to show up in your lobby with an interest to acquire your business. It's another to be able to maintain the interest through what I fondly refer to as the proctology exam of making the acquisition. And this is another area that small to mid-sized business owners totally underestimate what the due diligence process is going to look like. And this is often times the chance for the acquirer to reduce the exciting price that they told you they might be willing to pay for your business, for your practice. And you get all excited, sign some initial paperwork and it's all contingent upon them conducting their proctology exam.

Art Wiederman, CPA Right.

Larry O'Toole And the number of times that they can then reset, or they call it retrade their purchase price is when you go from being euphoric to being depressed in a very quick period of time. So I always encourage business owners reach out to those that understand the due diligence process and make sure that you're ready. One of the things that my company now helps businesses with is simply a due diligence readiness assessment. And Art you have the expertise to help people do that with their practices. And you really need to do that a year or two before you'd ever think of exiting because you're going to uncover things. It could take you that long to repair them.

Art Wiederman, CPA Yeah. And I will also tell you folks, if you have a spouse or a friend or a brother or a sister who has a company out there and they are thinking about exit somewhere down the road, I would strongly encourage you to have them give Larry a call. I don't think you gave your number out. You want to leave it the email or give out your number?

Larry O'Toole That's fine. 949.874.0787.

Art Wiederman, CPA Yeah. I mean, give him a call if you've got a friend who's got a manufacturing, a wholesale business, anything. You know, things like that. That's right. And you know. My dear, dear friend and partner in our CPA practice, Pam Chamberlain, Pam, and I have been together for 33 years. I mean, we've seen our kids grow up. We've been through everything together. I'm going to start calling her the chief proctologist because she does accountants due diligence for dental practices. In fact, our joke with Pam is that she's pissed off every Southern California dental practice broker other than me. And she doesn't do due diligence on my practices because it's a legal conflict of interest. But she does it for the other brokers and non-broker practices.

So I'm going to call her the head proctologist. I love that. Seinfeld did an episode on that, too. It was pretty funny. I just saw it the other night. So as we're coming, kind of winding down, I want to make sure that we get in. You know you and I've talked in the past, Larry, about the fact that you have a five-step campaign to help the owner of any business build long term value or worth. First of all, why do you call it a campaign and maybe go into some of those steps if you haven't already? I don't think we've gotten to that point yet.

Larry O'Toole Yeah. So I call it a campaign because it signifies the magnitude of what we're talking about here that you're trying to accomplish. You know, the military doesn't call it a process. They have a military campaign because what they do is big and it's the magnitude of what they do. We're not going through right now the season of the presidential election process. We're going through the presidential campaign.

So I call these steps of ensuring that you are preparing to optimize the future value of your business. I call it a campaign because of the magnitude of it. And your mindset needs to be thinking of it in terms of that magnitude. So to answer your question about these five steps in the campaign and let me just touch on each of them briefly. So when I work with business owners, and this is the campaign I've used with businesses that I was the CEO of. Step one of the campaign is defining the end game. What does good look like? And for a private business owner, that includes personally what is a good, like, look like and professionally, what does a good look like? What will make you euphoric when the day comes?

And as I mentioned earlier, you want to be as tangible as possible. So step one of the campaign begins with let's get organized around the thinking about what good looks like personally and professionally. The second part of my campaign is knowing the environment that you are operating in. I don't mean the operating within your four walls of your practice. I'm talking about what's going on outside the four walls of your practice. So knowing your environment is things like understanding what it's going to take to excite a future acquirer, as we've talked about.

It's also understanding the types of acquirers that are in your market because as you mentioned earlier, Art, there's always these firms that are doing roll-ups and buyouts and you want to know that environment because it can help you make decisions over the years with your business. So that's step two of the campaign is to know your environment. Step three of my campaign is to have a plan that bridges where is your business today versus where you want it to be in the future to achieve your what good looks like? That does take a plan. So step three of a campaign is to make sure that you have a good working plan that is guiding you over time to build the business that's going to excite and acquire. The fourth step of the acquire, or the fourth step of the campaign is building the right organization.

Now, you don't know fully future acquirer is only going to want your patients or whether they might want your team. They'll let you step aside and retire. But maybe they want to take over your team. So step four of the campaign means that you want to make sure that your organization, your culture, your team is going to reinforce the excitement that an acquirer could have about your practice. So step four is making sure that you are building and will present that strength of culture and organization.

And then the fifth and final step of the campaign is when the time comes that you have said, alright, now I am ready to exit. Now I do know that I built a business that I can get an optimal value for and that I can be euphoric from, you want to get around you the professionals that can help you get the deal done. And what I mean by that is your business lawyer, or your business CPA have been wonderful getting you to where you are. But are they deal experts because you don't want to go into a deal, an exit transaction, especially the due diligence, and not have a team around you, especially your lawyer and your accountant that had prior deal experience?

A lot of deals get to the finish line and actually don't ever get done. The other business owners don't realize that. They think that every business that goes up for sale gets sold and they'd be shocked to find out that the majority actually don't get over the finish line. And one of the primary reasons I see is that they didn't get deal professionals that truly know how to get the deal over the transom for you. So those are the five steps of a good building block campaign.

Art Wiederman, CPA You know, I don't care whether you're talking about one hundred-million-dollar company or a million-dollar dental practice. All of this. There's a lot of similarities. And I have a lot of doctors who are very particular, Larry, about who buys their practice.

Now, I think that for someone in a manufacturing or retail or wholesale, I mean, it's obviously they care about their people, but maybe it's a little less about that. But in my world, you know, there are, I would say, 25 to 50 percent of the doctors that hire us to sell their dental practices, literally, they want to vet these buyers big time. They want to see their resumes. They want to look them up on the Internet and they will turn down people that they perceive are not going to be good fits for their practice. And so that's also important, too, is, you know, what kind of a buyer you're looking for. Right.

Larry O'Toole True. You certainly want to make sure that you are dealing with somebody who is qualified on their side to get a deal over the finish line as well. You don't want somebody that you could go through weeks or months of due diligence only to find out that they don't have the funding that they claim to have had. So those are, that's all part of having the right deal transaction partners, which is the fifth step of the campaign.

I frequently hear from business owners; I would never sell to that company over there. I hated them since I started this business. You know, I'll never let that competitor get a hand on my business. And those are all valid emotional thoughts. But you also want to run it through the factual thoughts of where can you get the optimal value. And if it's only through that company that you will never consider selling to, then you just have to be mentally willing to accept a lesser value from somebody that you're comfortable with. If you as an owner are comfortable taking that haircut, that's up to you. But a lot of times you've got to separate the fact from the emotion in making this decision.

Art Wiederman, CPA  I've had actually two companies I've tried to push your way and they knew they wanted to get out within three to five years. Oh, I don't need to hire anybody. I can do this for myself. I can go on to what is it legalzoom.com and get the documents and do this all by myself. And one of them I found out, you know, that they got offered I think it was 20 million dollars less than they could have gotten offered. And I begged them, I said, please just go to lunch with this guy. Really just go to lunch. They wouldn't do it and stuff. What are some of the biggest mistakes you've seen people make in this process?

Larry O'Toole Biggest mistakes are not working a plan to truly building something that's going to be an attractive asset to a future acquirer. This is often the owner that just works in the business every day, but never periodically steps above it to work on the business.

And think about am I truly building something of value here? That's one mistake I see. The other mistake I see regularly with smaller to midsize businesses is an owner who is too instrumental to the business and a future acquirer will not be able to continue the ongoing success of the business without the seller staying with the business because it will kind of fall apart when they leave the business. That's a second big mistake I see. The third I see is underestimating the personal aspect of it. Meaning it's exciting to think about selling your business. But the reality sets in weeks or months before signing on the dotted line and people suddenly start to have second thoughts. They start to say, oh, my goodness, wait a minute now, I don't have a practice to go to on a Monday morning. What am I going to do with my life?

Art Wiederman, CPA And that's huge. Yeah. Talk a little bit about that, Larry. I mean, I've got doctors where I will say to them, OK. So what are you going to do? And I've literally had the spouse sitting there, male spouse or female spouse doesn't matter. And they'll say OK, so what are you going to do? I married you for better or for worse, but not for lunch, you know. So, yeah, I mean, you have that conversation when people too. Right? Like, what are you going to do on the other side? Are you financially, but not only financially ready, but mentally ready to not go to the office on Monday? And a lot of them go, yeah, I'm ready.

Larry O'Toole Yeah. This is a huge barrier for many business owners who are not ready for the emotional side of the transition. They don't know how they're going to fill their days each week. They get up in the morning, they drive to their practice and they drive home at five or six o'clock suddenly to not do that anymore. And that massively changes their mindset because they realize their identity was the business and the business was them. And now it's gone. And, you know, you mentioned earlier, Ellermeyer Connect. That's something that Bill Ellermeyer's really good at is working with business owners, helping them get prepared for thinking through the emotional side of a post-transaction event because I've seen it kill deals when people haven't been well prepared for it.

Art Wiederman, CPA You know. Absolutely. I mean, I think I've told the story on this podcast. My audience knows that I do repeat myself incessantly. It drives everybody in my life crazy. But they still let me come home every day, is my mom. My mom was an accountant, Larry. She was, she's the one that encouraged me to get into accounting when I was about 15 years old. And she had her own accounting practice. And every year she'd come up with one tax question for me she'd call me with. And she sold her practice when she was 82. She left April 1 and she died August 25th because she had nothing else. And I tried to talk to her about getting another thing, but her life was her practice. And you do need to be doing, that's one things Bill talks about is that, Larry, is that, you know, when do you retire? You don't retire. I mean, that's Bill's mantra, isn't it?

Larry O'Toole Exactly right. It has to be thought through. It has to be thought through. You're not just thinking through the business side. You've got to think through the emotional side as well.

Art Wiederman, CPA Well, I'll tell you what, this is, I love this conversation. And again, every time I talk to you, I learn something, and you just make this complex topic so simple. I want to ask you one more question. We know that a journey starts with the first step. So what would you recommend to our audience today if they're listening to this and going, you know, I've been, I've got to do something, but I don't know? What's the first step?

Larry O'Toole The first step is just starting with step one of the campaign that I mentioned, which is identifying for yourself what good looks like for yourself professionally and personally at a future state and be as tangible as you can in defining that.

So identify how much money you need or want one day from an exit event. Ask yourself what you want to do personally once you no longer have your practice that you need to go to. Think through what you want to have happen to your team. Do you care that the acquirer may or may not want your team that you're going to leave behind? So these are all part of what does good look like.

That is my advice to people, is it starts there. Once you have that in front of you, then you go back to where your business is today as a starting point and you can identify the gaps and the barriers that need to be moved out of the way to get yourself to that future target.

Art Wiederman, CPA That's just so well said. One more time, Larry. Give out your contact information. Again, I want to encourage you, if you're a dentist, listening to this, Larry has been very gracious, he's said he'd be happy to chat with you. He might even be able to consult with you. I mean, to have a coach like this man on your team to give you the 35,000-foot view of what steps to take is invaluable.

If you know of anybody again, husband, wife, sister, brother, friend, family member who has a business and they've been struggling with it and they don't know what they want to do and they don't know where they want to take it. I mean, Larry would be a great guy to talk to about this. And Larry, you can work pretty much, well, right now everything is virtual, but you can work, you work with businesses outside the state of California, haven't you?

Larry O'Toole Regularly. Yeah.

Art Wiederman, CPA Regularly. So he can work with anybody. Give out your contact information one more time.

Larry O'Toole So Larry.OToole@YosemiteAssociates.com. And to the listening audience, I wish you great success on your journey to euphoria for your practice.

Art Wiederman, CPA Well, maybe euphoria is somewhere near Hawaii. I'd like to get there. I'm not quite ready to get on an airplane right now. I think October 15th it comes off of quarantine is what I've heard. But anyway, Larry, hang on. Don't leave. I'm going to kind of exit us out of the podcast. But thank you so much for your expertise and your time today. I know that our listeners have benefited from it.

And what I'm hoping folks, is that, and again, we didn't get into all the steps for a dental practice. That's not what today was about. We've done that before and we will do that again. But this is about getting you to think, a podcast is about getting you to think, you know, I really need to address this. I really need to think about this, because if I don't, it's not going to go well. And if you do, it's going to go better. You're going to get more money. You're going to get a better buyer. You're going to get all kinds of benefits out of that. So, again, if you guys want to get a hold of me in my office in Tustin, I'm at 657.279.3243.

I'm going to be a little busy next couple days. Do remember, folks, that your individual income tax returns on final extension are due Thursday, the 15th of October. So you want to make sure you get those done.

And we also remind you that the Phase 3 of the HHS Provider Relief Fund is available for Add-On Payments. And if you didn't get your two percent or if you had started your business between January 1 and March 30th, go to www.hhs.gov.

And you can email me a question at awiederman@eidebailly.com. That's awiederman@eidebailly.com. If you want to get a hold of me. And again, if you're looking for a great magazine Decisions in Dentistry www.DecisionsinDentistry.com. And if you're looking for a dental CPA anywhere in the country, I'm in Southern California. www.ADCPA.org.

Well that will do it for this episode of the Art of Dental Finance and Management with Art Wiederman, CPA. Thank you, guys, so much for listening. Our podcast is blowing up every single week. More and more listener. We get great emails and questions from people. And again, thank you so much for the honor and privilege of your time. And we'll see you next time. Bye bye.