Questions to Ask Before Seeking Financing for Dental Startup or Acquisition

Carrie:

Welcome to the Jameson Files. I’m your host, Carrie Weber, and it’s so great to have all of you back in the Jameson Files community today. We’re excited. We have a very special guest who has come to the Jameson offices to be in person with us for this interview. This is Tom Angeloni, the National Sales Director of Bank of America. We were talking earlier, Tom, we’ve both been in the industry for about the same amount of time. It’s been over 20 years for you. 

Tom Angeloni:

Like a quarter century. I have to date myself.

The Future of Dentistry

Carrie:

Well, a lot has come and gone. I’m really excited and very grateful that you’ve come by to spend some time with us because, for those of you out there, whether you are a young dentist starting out, looking to get footing into your own practice ownership situation or whether you’re a practicing dentist and have been practicing for some time and are looking for opportunities to expand, you may have a lot of questions about financing and what things you need to be considering. What is the environment like today and what things can you plan for? So, Tom, I’d really love to have a conversation about that. I’d love to start out with just giving your perspective on where things have come, after all of this time. From your perspective, where do you see things right now in the dental industry? In the dental environment? 

Tom Angeloni:

Honestly, it’s driven demographically.  There have been a lot of states, different territories that were heavily driven by startups. Over the years, depending on where you’re at, that has moved more towards acquisitions. Overall, we still find that the dental economy is still very strong. Dental spend is up year over year.  The last stat I saw from the ADA is that between 2021 and 22, there was an increase, not a huge increase, but about 1.2% increase in graduates. And then over a five year span, there’s been about a 7% increase in graduates. So you still have a lot of graduates coming out. And the trick is to keep pace with who’s retiring, right? That’s always the trick. So the projections, again, ADA and some different consultants are really looking at it and say that over the next eight to 10 years, so 2031, they say that there’s going to be a shortage of about 30,000 dental professionals. So you can look at that as, you know, very optimistic and an opportunity. There are still, as it stands right now, about level or a little bit more graduates compared to those that are retiring.

Starting a Dental Practice from Scratch or Acquisition

Carrie:

Wow.  And I don’t know why that feels surprising to me, but, you know, that gives a lot of opportunity to these young dental graduates. You do a lot with dental students and with those new dentists in trying to educate them on what their options are. And they think they know the direction, but I don’t know that they’ve done a lot of due diligence in terms of how to make the best decisions for the start of their professional career. Some of you have, but some of you may still be really unclear about how you get from here to there. What are some of the questions that you get asked a lot from these dentists starting to explore purchasing or even starting up a practice from scratch?

Tom Angeloni:

I’ll tell you the most common question in all the lecturing that we do at different dental schools across the country.  Almost 80% of the time we do this, the question comes up, should I start a practice from scratch, or should I do an acquisition? 

And a lot of people have different opinions, right? Obviously, when you acquire a practice, you have a built-in patient base, you have a staff, you have equipment. It’s almost like you flick the switch and get going. But what I’ve always seen is that it really has so much to do with what the transition plan is, right? 

So if you’re going to walk in and do what we call a walkaway acquisition where a dentist has been there for 30 years and he leaves on a Friday, and you come in on a Monday and take over that practice, with no transition plan in place, it’s hard, right? You see a lot of attrition from that, because a lot of people have been driving past three or four dentists to go to that dentist, because that is what they have done their whole life and they leave. They say, well, there’s no reason for me to pass up. I don’t know the new person anymore. 

So, a walkaway transition doesn’t work well.  I’m not saying there’s not opportunities for that, but it is much more difficult. And sometimes, as you know, when you buy a dental practice, you pay a percentage of the revenues. So if you pay it and then all of a sudden you lose 10% from an attrition standpoint, you’ve just lost that, right? So in my experience the key is to have a very good transition plan where the existing dentist is going to stay. You don’t want them there for a long time, but at least six months. So you get one rotation for everybody coming through for hygiene. Then you slowly transition.

And when you do that, you don’t have as much attrition, because every time a new patient comes in, they’re introducing you as an associate. And all of a sudden, they don’t even realize it, now you’re the owner, right? When you do it that way, and you have a good transition strategy, there is much less attrition, and that might be a better situation than a scratch startup. 

Now, the flip side of it is that when you do an acquisition, you’re basically taking over a practice that already has character to it.  It’s already been doing things a certain way. The staff has been doing things a certain way, and as we all know, people are just naturally adverse to change. So you come in, and again, you think that you have a staff, and then you start changing things and you realize that the staff doesn’t like that and they leave. So in that scenario, it may be better to go ahead and do a scratch startup. You can do things the way you want with your equipment and build your staff how you’d like. So I’m really not for or against either one. 

Carrie:

You do a lot of both.

Tom Angeloni:

A lot of both, right. It’s really just the transition and, and where you’re at. And if the transition strategy is done right, then maybe an acquisition is best.

Carrie:

I think this is really great. I’m glad you brought it up, Tom, because as I think about doctors that we’ve talked to, practices that we’ve worked with, and conversations that we’ve had, this is so true, and it’s interesting coming from your perspective to also be recommending that. This is something for anyone listening, if you’re the doctor looking to acquire, think really clearly about it before the purchase is made. How are you going to enter into that practice and have that be as successful as possible? But also if you are looking to sell, if you want that practice to be successful long after you’re gone, what are you willing to do? What intentional processes are you willing to partner with the buying doctor to help that be that successful transition? I think from both sides, that’s a really important thing to consider for the success of the practice, and for the patients, and the team. So that’s a great point that you make there. 

The Key to Making Wise Financial Decisions when Acquiring

When you think about the financial investment that these doctors are going to make, whether purchasing or starting up from scratch, what would you say is important for them to consider, long before, in preparation for taking these leaps in this next step of their careers?

Tom Angeloni:

I think what you just said there, preparation, that’s the key. I always say it’s vital that you surround yourself with industry specific people that can advise you. We talked a little earlier about how so many say, I want to buy a million dollar practice. And you’re like, well, maybe you do, but maybe you don’t, because there’s a big difference between a million dollar practice and a profitable practice. Right?

Carrie:

Wow. Say that again. 

Tom Angeloni:

There’s a huge difference between a million dollar practice, a million dollars being produced in the practice and a profitable practice. So many get it locked in their head that production is important. I want to buy a practice, or I want to start a practice and get it up to a million dollars or 1.5 or 2 million dollars. And if it’s not a profitable practice, you don’t want that. So yes, having a team of advisors that can come in and look at it and say, okay, well this practice is doing a million or 1,000,005, but overhead is up here. It’s not the most profitable practice, so maybe you don’t, and you can take that analogy across to all different aspects of starting a practice or growing a practice and say, look, you really have to have the right people around you to advise you.

And that would be from the right dental specific lenders to CPAs, to financial analysts, to contractors, to equipment providers. You really have to take your time and prepare, as you said. And that’s whether you’re starting or whether you’re growing.If you’re doing a second or a third practice, you need people that can come in and advise you on whether this the right time to go from one to two or two to three, or is my infrastructure set up correctly to go from three to five? 

We were making jokes earlier that you would think just like when you have children, right? You have one child, and two wasn’t hard. So you figure, how much harder could three be? And then you have the third and you move from man-to-man defense to zone defense. It’s very similar when you buy practices, right? Going from one to two isn’t all that difficult. You can hire an associate, you spend some time there, I’ll spend some time here, but then you go to three, then you go to four, and then you go to five, and you ask, who’s going to manage all these? I can’t be in five places at the same time. It’s so vital to have that group of people around you to advise you on that. 

How to Expand Successfully 

Carrie:

Can I jump on that example that you shared? Bank of America is nationwide, so you all see the spectrum of what’s happening in the profession, but something that I see is that in some aspects of the country, there are a lot of solo practitioners that are starting to expand into multi-location. And obviously we talked before we recorded this, but you know some of those are successful, and some of them do a lot of maybe getting ahead of themselves, quick decisions, not doing the process of full preparation and educating themselves. So if some of those more established practices are watching and listening and are exploring those avenues of expansion in their businesses, any advice that you’d give to them from lessons learned?

Tom Angeloni:

I think it’s somewhat the same, make sure you’re advised right? It’s very easy to think that, hey, all I have to do is duplicate what I did in practice number one, and I’m very successful at it. And do that again in practice number two, or do that in practice number three. But there’s so much that comes into it, right? If you’re going to be a multi-practice owner, one thing you need to ask is where and how far away are your practices going to be? The last thing you want to do is cannibalize one office to generate revenue in a second office. And so many don’t take that into consideration. Run some demographics, see where your patients are coming from, so you know that they’re not coming to your new location because it’s closer to them, but you’ve actually negatively impacted your revenue from your first location. 

Carrie:

Starving one practice to feed another

Tom Angeloni:

That’s right. To feed another. Those are some of the little things that if you’re not advised properly, you don’t always think of. You just say, “I can do it here, I can do it over there. I can do it here, I can do it over there.” It’s so vital; and it has to be the right time for you, right? You might be thriving in your first practice, but from a financial standpoint, get the advice of an industry specific CPA, in this case, a dental specific CPA.  Get the advice of your financial advisor to make sure that in the whole grand scheme of what you’re doing– life, business– that this is the right time to do it, whether you’re expanding or whether you’re going into multi-practice.

How to Know When to Expand

Carrie:

When you think about expanding an existing practice, what does that look like in the conversations that you all have with doctors? How do you guide them? I actually just recently worked with a practice that their vision several years from now is to expand the practice that they’ve already built. When do you know it’s the right time? 

Tom Angeloni:

That’s a great question. Our goal is not to just give people a bag of money and say, Hey, we can approve you. Go ahead and expand.  We’re looking at the metrics of the practice. Is this the right time for you to expand? A general rule of thumb is, again, it’s not everywhere, but in general, we say that you should be doing roughly $30,000 per month per operatory before you really need to expand or equip another operatory to expand. If you’re not doing that, then more than likely you’re probably not scheduling the way you should be. But if you’re doing that 25 to $30,000 per month per op, and you have people waiting, then maybe it is time to expand. But we’re not going to tell you to expand just because you can afford it.

Carrie:

Right.

Tom Angeloni:

We’re going to look at it and say, why don’t you just maximize this location, and then we’ll talk about expansion. Maximize what you have now, maybe increase some technology, and then we’ll talk about expansion again. Again, you have three operatories equipped, and the fourth and fifth have been sitting back there not equipped. It’s kind of itchy. I want to equip that. Right. They’re empty. And very often, to be honest, if you don’t have the kind of patient base to fill those seats, it’s not the right thing to do. And we would never advise you to do that just because you’re lendable. We want to make sure that you’ve been advised properly and that it is really the right time. It’s a big step to invest in another practice or a few more ops.

Carrie:

I really like that key metric because, at the risk of oversimplifying the whole decision-making scenario, that gives you a really good viewpoint to go look at your own numbers, go look at your own practice performance to determine if this is the right time. I mean, there’s always some metrics that you can go look at that help with your decisions for the future. Should I hire another clinician? Should I hire another hygienist? And you can look at metrics for that. You can also do this for the decisions you’re making in investing more into your practice or future practices.

Preparing to Sell Your Practice

Rewinding a little bit, I really love what you said when you were talking about preparing for transition, and also when we were saying it’s not just about production, it’s about the profit of the practice.

I think that’s really important. Tom’s perspective is from those that are getting financing to make these investments. But for those of you that want to sell, it’s really important to know that, if they’re well-advised, the potential doctor that’s going to purchase your practice, is going to be looking at these numbers, too. And so if they’re well advised, and if you have no profit margin or your overhead is through the roof, there’s work to be done on your side of things to make your practice more attractive to sell. I think that would be really beneficial for a lot of these doctors. As you said, there’s a big exit happening of doctors looking to retire. And if that’s you, do your due diligence to make your practice as successful, as clean, and as in order as possible, so that when those people start looking, it’s pretty difficult to deny the attractiveness of your practice. I just felt like that was a really good point.

Tom Angeloni:

Agreed. There’s so many things that you need to do when you’re preparing to sell. And what unfortunately happens in too many cases is that you start kind of turning things back, right? You say, I’ve been working five or six days a week for 30 years. So I’m going to start thinking about selling in another three to five years. So you say, well, I’m going to just work four days a week, instead of five or six days a week. Obviously what you’re doing there is decreasing your revenues over a period of time. So then when you go to sell, you’re going to sell for less. So again, we’re not advisors, but what I’m telling you is just from experience and talking.

Carrie:

And what you’re seeing day in and day out as a premier bank that’s helping so many dental professionals. And that’s something that I love about Bank of America–your long running experience in dentistry, in healthcare. It just gives you such a great perspective. And I think it’s important for doctors to hear that perspective as well. 

Steps for Young Dentists to Starting or Purchasing a Practice

So let’s say I am a young dentist and perhaps this is the year for me. I want to buy a practice, whether I’m graduating or I’m an associate right now, or whatever the case may be. What are my steps here? What, in terms of that preparedness factor, would you recommend to young dentists or doctors that are ready to start exploring a practice purchase? 

Tom Angeloni:

Sure. Again, that’s a great question. Maybe you’re a third or fourth year dental student or maybe just one year out associating, what should you be doing right now to be prepared to buy in another couple years or to start in another couple years? I would say the most important thing is make sure your finances are in place. When I go to dental schools, I don’t talk about what we do better than another bank. What I talk about is how do you prepare for this? And the first step is to make sure your finances are in order. We all know that if you’re in dental school, you’re going to have on average 350, 400, 450,000 in student loan debt. 

But you have to make sure that you have your credit in check. And when you graduate, so many say, I want to get rid of that debt. I want to get rid of that debt. Of course it’s important to decrease your debt. But what happens a lot of times is you take all of your extra money, all of your liquidity, and you’re paying down your student loan debt, which is probably on the lower interest rate side. And then when it comes time to start a practice, you don’t have that safety net underneath you anymore in case things go a little bit slower. So for a startup, I would say, or a new practice owner, I would say, look, make sure that you’re managing your debt.

If you’re new and coming out of dental school, as much as you want to and probably deserve to go get the BMW and the expensive house, just maybe take a step back.  I’m not saying you shouldn’t have a car. I’m not saying you shouldn’t have a house, but just put away the million dollar mansion and the hundred thousand dollar car. Be relatively modest with your spending and there’ll be time, right? You’ll get to that Taj Mahal dental practice, you’ll be able to buy the boat and the mansion and the cars. But so many come out and say, gosh, I’ve been struggling so long. I’m now a dentist. Now I’m a doctor. I’m going to go get this. So I would just say, make your monthly payments, hold onto some of your cash so you have it for a rainy day or a safety net.

And then you’ll be in prime position to start off successfully, right? And you won’t be crushed with so much debt service every single month. 

And then, you’ve been out and you’ve been associating, as far as the timeline, one of the first things you do is consult your financial analysts or consult your CPA and make sure that this is the right time for you to start a practice. And then the next thing usually is then to say, how lendable am I?  Who will give me enough money? And we all know that there’s dental specific lenders, different ones, and we all love lending to dentists. But you have to make sure it’s the right time for you. 

And then you have to decide whether you want to lease a space or buy land and build a building. That’s a very difficult decision. There’s the financial part of that, but the one that’s always missed is, do I want to live here? Do I want to raise my family here? Do I like the schools here? Is the economy where I want to build strong? Do I want to be here? Not just because you’ve got a good deal on a piece of land or a good deal on a building, you have to make sure this is where you want to live for a long time. 

Because, as many of you know, it’s very difficult to sell a dental practice or to sell a building that is dental. If somebody wants to come in and make office space out of that, you have plumbing in every room. You have med gas either going over top or going underneath, and they pretty much have to gut the place just to make it office buildings again. So it’s very important that you’re advised by the right people and that you’re thinking through all this, not just, I can get this land cheap and this building cheap, but if I don’t want to be here, I could wind up taking a loss on this to move out.

Carrie:

Wow. That’s some guru wisdom right there, because for any of you that are listening, really the takeaway is be smart, take your time, think it through, get a clear vision. Be patient and get help. Have people give you experienced advice so that you make the smart choices now, so you’re not paying for the wrong choices later. I love that, Tom. 

Benefits of Using Bank of America Practice Solutions

If there are some doctors out there that are looking at opportunities in the near future, what are their steps to reach out to those representatives that can help them at Bank of America?

Tom Angeloni:

You can pull us up online and we have upwards of 70 business development officers in all major metropolitan areas that cover the territory. We can connect you right with them online. 

There’s a lot of choices out there, a lot of good choices. I’ll be honest. There’s others that do dental specific lending. I will tell you that the one thing we do a little bit differently is we’re not just interested in the loan. The loan is about 5% of what a dentist really needs to start or expand. When you start looking into it, you need to ask how do I take payments? What do I do about swiping a credit card? And how should I set up my operating accounts so that I have operating accounts separate for my supplies than I do for my accounts receivables? So much more goes into it. How do I do QuickBooks? How do I pay my staff? Should I offer them benefits? There’s so much that goes into it. We’re really not in this to just say, Hey, you’re lendable, here’s a bag of money, good luck. Start paying us back in 90 days.

We really want to look at the whole picture and best help put you in a position to be successful. And that might not always be by giving you the million dollar loan that you want. It might be to say, maybe do a little startup over here for six or 700,000, and then grow into that. So again, we’re just not after the quick, “Here’s your money and go.” We want to make sure, and we’ve been doing this, Bank of America Practice Solutions for upwards of about 27 years. So we definitely know what goes into it more than just can you afford the loan payment?

Carrie:

Absolutely.

Tom Angeloni:

So that’s really where I just see a little bit of the difference. And again, that’s not talking poorly about any others out there because there’s a lot of good lenders out there, but make sure it’s dental specific, and we’d love to teach you about everything that you need in addition to the loan.

Carrie:

So my big takeaways are to take your time, think it through, be smart. Probably the time is now to start preparing yourself for that moment in the future when you are ready to make that investment and move into that next chapter in your dental journey. And make sure that you have advisors and experts in the industry that are familiar with your world to help you make the best decisions for the most successful future possible. So Tom, thank you so much for joining me. 

Tom Angeloni:

Thanks for having me. 

Carrie:

Thanks to all of you for being with us on another episode of the Jameson Files. We’ll see you next time. 

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