Your Private Practice Is NOT A Job: Why You Should Treat It as a Long-Term Business Investment

You're listening to the Phil Klein Dental Podcast. If you own a dental practice, you are an investor in your business. But many of us look at what we do in the office as a job. In this episode, we'll dive deeper into this mindset and why this can affect our career satisfaction and financial success. Today, we're going to be talking to an expert on this topic, Eric Miller. He has been in the financial planning industry for over 20 years. He's the co-owner and chief financial advisor at Econologics Financial Advisors. He takes pride in helping practice owners become what he calls the financial heroes of their own stories and has taken this passion to over 600 families in the past decade. During this time, he's had over 15,000 conversations with practice owners regarding money, investing, practice expansion, practice transitions. taxes, estate planning, and so forth. So he certainly knows a lot about this topic. Eric will be joining us in a second, but first, as dental professionals, we know that the right autoclave can enhance your patient flow and help build a more profitable dental practice. It's all about keeping things moving. Chamber autoclaves are great for reprocessing large loads, but sometimes you need a few hand pieces fast, and you don't want to wait to fill a chamber. That's why a lot of dentists choose the Sycan Statum 5000G4. While the look has changed over the years, inside, Statum still uses a reliable, innovative steam technology developed 30 years ago that continues to deliver instruments in some of the fastest times in the industry. It's one of the best-selling autoclaves in the world, and its reliability has made it the workhorse sterilizer in dental offices across the United States. To learn more about how Stata may be right for your practice, visit SciCan.com. So let's introduce our guest, Eric Miller. Eric, thanks for joining us on the show. Thanks for having me on, Phil. Appreciate it. So getting right into this, Eric, you think it's important that a dentist owner, a dental practice owner, does not look at what he or she does as a job. You think they should look at it as an investment? Well, you know, an investment by definition would be something that pays you to own it. OK, for me, that's my definition of what a good investment would be. It's not speculative. It's not like buying Bitcoin where I, you know, hey, I bought at this price and I expect it to go up, you know, you know, 400 percent, you know, an investment. is something that pays you along the way. And then of course, has the ability to increase in value along the way. And that's what my definition of an investment would be. So in light of that, why do so many dentists treat their own practice as a job and not as a long -term business investment? I think it just kind of goes back to that. that thing where, you know, you went to school, what was the priority? I wanted to learn how to help people. I wanted to help. I wanted to become a great practitioner, a great dentist. I wanted to make people, you know, be able to smile or, you know, I wanted, I wanted to be able to help people. It wasn't necessarily money motivated for a lot of people. And, you know, I think along the way, obviously you understand the importance of money. But I think that initial, that initial thing right there is what kind of keeps them from looking at their, at their practice. Like this is an investment. This is something that can continue to pay me. It has value. that I need to treat like anyone else would treat an investment and not just treat it like something I'm gonna go to from nine to five and then check out. Yeah, and that is so important. And you talked about that in a previous podcast, Eric, about burnout, how you can get burnout by treating it like you're just an employee of a business that you started, that you invested in, and you're not getting the value out of that business investment as you should as an investor. You're just, you know, you're looking at yourself as an employee. So my question is, what do you give up having that mindset of just being an employee or just looking at it as a job? You know, I think the biggest thing that you're going to give up, number one, you know, and I ask this question to a lot of dentists and I'll like, hey, what's the biggest expense that you have? And of course, a lot of them are going to say, well, it's payroll or. overhead or whatever it would be. And I, my answer is none of those things are your biggest expense. Lost income is your biggest expense money that you had the opportunity to make. And for whatever reason you didn't. Okay. And whether or not you're, you're not training your treatment coordinators to, you know, ask for, ask for money or you're not treating your practice, like I said, like an investment. And then at the back end, when you sell it, maybe you could have sold it for $2 million or more, but because you treated it like a job, now I'm only going to sell it for $600,000. And the difference between what you could have sold it for and what you are selling it for, to me, is lost income. And that's the difference. That's the investment opportunity that you're giving up. by treating it like a job. Yeah. And you also talked about in a previous podcast, a methodology of pulling 10% of the top line revenue every two weeks, whatever pay period that is. Can you elaborate on that again? Yeah, for sure. So, you know, when you look at when I asked most practice owners, like, hey, how much do you need to operate your practice? Like, what's your make break number? And most of them are going to say, well, it's blank. You know, it's 50,000, it's 80,000, it's 90,000. I'm like, okay, well, what is that? What do you consider your make break number? And most of them are going to say, well, it's the amount I need to bring in just to cover all my basic expenses. And I'm like, okay, what do you consider a basic expense? And my contention is, is that your basic expenses need to include the payment to you as an owner. OK, so that you can pay yourself and have that create other income sources for you. And that's the that's the first expense that we try to embed. Most owners are probably underestimating their make-break number by at least probably 10% to 15% because they're not including that 10% as a necessary expense. And it's not designed for you to buy a bigger home or buy more boats. It's designed so that you can use that to invest and create other income sources. That's what the purpose of it is for. And those income sources are outside of dentistry, you're saying? Correct. I mean, look, I mean, most of most dentists are going to rely upon their practice as their primary wealth building engines for for a period of time. But it shouldn't be that way forever. And you want to build, you know, other income sources. I know a lot of dentists love investing in real estate and, you know, stocks and bonds or, you know, insurance based products or alternatives. You know, that's a whole different discussion of where you should put the money. But you have to have it in the first place to invest. And the only way that you're going to have that is if you physically remove that money out of your practice and separate it out. Because if you don't, the business will just eat it up somewhere. It will just, it'll consume it somewhere because that's what a business does. Well, that's what I wanted to ask you. So I'm a new practice owner and I don't have huge cashflow. Now you're suggesting that I pull 10% off the top line revenue. from the get-go or do i have a period of time to ramp up to that where i have some cash flow coming in i'll give you i'll give you a little reprieve on that maybe just a few months but i think eventually like anything else in life you want to do it on a gradient And that's what I would definitely advise to most people. Don't start trying to pull this 10% right away. Your business is not accustomed to it as an expense. You have to get the business used to it. So I typically start with maybe like 2%, you know, start separating out 2%. And then every four to five weeks, just increase it like another percentage. And it may take like, I don't know, like 10 months or 12 months. before you're doing your full 10%, but so what? I would sacrifice 10 to 12 months to have a lifetime where you're taking that money and you can use that for building other income sources. Yeah, and as your practice is growing, that 10% keeps getting bigger and it just keeps multiplying. And before you know it, you've pulled out quite a bit of money, taken it out of your business, and then you have to have a financial advisor to make sure you're protecting that money as much as you can tax-wise. and obviously diversifying. So once you have the mindset that your dental practice is a long-term investment, obviously you want to grow it and make sure that it continues to be successful. What can we do as practice owners to ensure that happens? Well, I think you have to like have a vision of what you want this practice to look like. You know, do you want it to have multiple associates? How big do you want it? I think it's really going to start with what is the vision for what the practice is like any other investor that I've ever seen. The first thing they started with was this is what I want this thing to look like, you know, in 10 years or five years. And then they, they built it towards scaling it to whatever that vision was. So again, you know, in treating something like an investment, what's the highest and best use of that investment. Another thing that you can do with that is like, okay, so every dentist has like a facility, right? So they have, 3,000 square foot, 5,000 square foot, 7,000 square foot, whatever the size of their facility is. So the first question that I would ask myself, if I'm looking at it as an investment is what is the maximum production that I could do out of this facility? Okay. I have so many chairs. I have, you know, so many rooms I have like, but what is the highest and best use of this facility production wise? and phil i was surprised when i started working with dennis like i would ask him that question like you guys know what your facility capacity is and they're like what the hell is the facility capacity i'm like like what the the top line production could be if you were at max capacity and they're like no we're just trying to survive the day right and and and the difference again is that's lost money Like if your practice could be doing 250,000 a month and you're doing 175, you know, that gap right there is lost revenue. That's lost income. And, you know, so that's, I think the first thing that we try to do is really see like, what is it that practice could do on a monthly basis? We'll be getting right back to Eric in a second. But first, we all know that to achieve healthy, beautiful smiles, we sometimes need to align the teeth. and to do so, aligner therapy is a great option. So why not set your practice apart with 3M Clarity Aligners Flex? Designed for comfort, Clarity Aligners Flex feature a thin, flexible design, yet they deliver excellent force persistence over a two-week period. Plus, they resist scratching and stains, and they're backed by a dedicated clinician team providing support every step of the way. With a variety of affordable case type options, single or dual arch, Clarity Aligners Flex offer a great value to your patients and practice. To learn more, visit 3m.com slash clarity dash aligners dash flex. So you have regular dialogue with your clients who are dentists, and I know you specialize in the dental area, and I'm sure there are other financial advisors that do the same. But in your situation, how would you... guide that dentist when you realize that they are not aware of the capacity? What is the potential of this practice that I'm currently in? Even without expanding, what's the potential? And then, of course, you have the option of expanding. How do you have that conversation with the dentist? What do you analyze to guide them in the right direction there? Well, obviously, we've had many dental clients, so I kind of know what the average transaction should be, how many patients they should be seeing. And there's a number of other factors. And we have some exercises that we give our owners to like kind of work out like this is what your practice could be doing. But again, it just goes back to we understand how a dental practice works. We understand the profit margins, you know, where your expenses are. And then we can just kind of we can guide them in saying like, look, this is what your practice could be doing. And this is what you should work towards. Now, getting them there is a totally different story. I'm not necessarily a business consultant. I'm not going to go in there and tell you, you need to hire this person and fire this person and do this marketing program. I'm a financial guy. I'm just going to give you the numbers. But I think it's helpful for them to have a set of eyes on their profit and loss statements so that they feel like they can make good decisions. when it comes to making expansion decisions. Right. So at least you could advise them that there is more potential and that they should put a team together to carefully analyze their practice to see where they could make up for any deficiencies and boost that revenue and production. And it also depends on what the dentist wants. Everybody's different. I assume, of course, that every financial advisor should personalize the discussion and their recommendations to each dentist, depending on what their goals are. No, yeah, you're totally correct. I mean, everyone has different goals and where they want to be in a certain period of time. And I'm not going to sit here and try to force someone to do something that's just not really where they want to be. I start really with, you tell me, what do you want to have? And then we can work backwards and I'll tell you what you need to do and who you need to be in order to get that. But for the have part, what you want to have, what you want to possess, the goals that you want to achieve that comes from you. And then you're going to have to tell me that. And then we can work backwards from there to tell you what you're going to need to do to achieve that. But to do this effectively, I think it's really important to have a good financial advisor that's in your corner and also maintain the mindset that you're not just an employee of the practice. Yeah, I think almost every practice owner I've ever run across wants to have a business that they can be proud of, that has value, that... feel like is going to be better in better shape when they transition it over to somebody else. I mean, nobody wants to leave somebody, something that's disheveled and chaos or anything like that. So most, most owners I've ever met want to, want to create something that's profitable, that's sustainable and is transferable at some point. And whether you're like, you want to have a $10 million practice with multiple locations or. you know, a million and a half dollar practice and just maybe one or two associates, totally fine. But I think everyone wants to have something that they can be proud of when they're done with it. In the real world of dentistry, some dentists are just not financially savvy. They have really no interest in combing over the books and reading a P&L and following the finances of their practice. They often delegate out these responsibilities to other people in the office. What do you typically say to dentists that fall into that category? Well, look, I mean, I think... can be many different types of owners. There's owners that love just to practice and there's owners that like more of the executive side. I don't necessarily need someone to have a complete love for advanced accounting and know all the different algorithms. You just have to have a sense of what... condition should I be in? There's some basic financial metrics that I think every owner probably should know. And that way they can track them to make sure that they're not getting embezzled or getting ripped off because obviously that happens quite a bit when you take your attention off the money lines. And again, this just goes back to making sure you have a good financial team, people that are trustworthy and more than anything else, you just cannot give financial responsibility. It's okay to turn over financial responsibility to some money. Just don't give it to someone that's irresponsible because that's when you will get ripped off. But you should get reports once a month. How are we doing? And most importantly, setting up some of these systems that I was talking about of expensing out your profits, setting these accounts up, and then having an automatic investment plan. These are all things you can do where you don't have to have a lot of attention on it. But at least you know it's being done. So in your opinion, Eric, you've... with a lot of dentists do dental practice owners spend enough time thinking about expansion and growing their practice getting more square footage maybe buying another practice because that's all part of building their long-term investment what experience have you had with dentists on that i i think the there's a couple observations i've made of living on this planet for as long as i have and You know, you're either going up or you're going down. It's very rare that someone just can kind of stay static and go sideways. So whether you like it or not, you're going to be faced with the fact that at some point in time, there's only so many bricks that you can lay in a day. And you're going to have to decide whether or not, okay, I have to take this thing seriously and learn. How do I hire? How do I fire? How do I expand? You know, some of the business things or. You can just say, you know what, I'm just going to ride this thing until I don't want to do it anymore and die with my boots on. And again, the penalty for that is the value of the business. You know, if you're one of those people that says, I'm going to expand, you know, maybe I'll bring on someone, maybe a partner that really is hungry and likes this area more than I do. And I can just practice and we can collaborate and work together, but we can expand. Or you can just say, I'm going to do it by myself. But then one day you're going to wake up and your practice is going to be worth 30 cents on the dollar. And that's the penalty, which may be okay for some people. They're like, I've saved enough. I got enough. I have enough. And I'm like, okay, that's totally fine. But that's some of the things that you have to think about along the way. Before we wrap it up, Eric, what is the best way for our audience to reach out to you to get more information? Easiest way would just go to wealthforpracticeowners .com. That's wealthforpracticeowners.com. And we have plenty of information that would be directed to you as a dental practice owner. Thank you, Eric. And have a great rest of your week. Thank you. If you're enjoying this podcast, please leave a review or follow us on your favorite podcast platform. It's a great way to support our program and spread the word to others. Thanks so much for listening. See you in the next episode.