March 26, 2025



Financial Planning and Practice Transitions: A Conversation with Charles Loretto

Episode Description

In the latest episode of the educational podcast, host Charles Loretto, a partner at Cain Watters and Associates and founder of National Dental Placement, discusses the critical aspects of dental practice ownership, emphasizing its financial benefits and career fulfillment. The interview covers five key reasons for owning a practice, including higher earnings and business equity, while critically comparing corporate dentistry with private practice. Loretto provides insights into financial metrics like EBITDA, the advantages of acquiring an existing practice over a startup, and strategies for mid-career dentists to improve profitability and manage overhead. He also highlights the importance of exit strategies and financial planning for those nearing retirement, urging dentists to focus on clinical skills, establish proactive tax planning, and regularly review their financial goals to ensure long-term success.

Episode Navigation

  • 00:01 – 10:29 – Introduction and Background
  • 10:29 – 20:25 – Financial Aspects of Dental Practice
  • 20:25 – 30:48 – Practice Acquisition vs. Startup
  • 30:48 – 39:36 – Mid-Career Dentist Strategies
  • 39:36 – 48:13 – Exit Strategies and Financial Planning

Key Takeaways

Introduction and Background

  • Charles Loretto introduced as partner at Cain Watters and Associates
  • Founder of National Dental Placement (NDP)
  • Charles has spoken at 51 dental schools and to nearly 30,000 dentists
  • Emphasizes importance of dental practice ownership
  • Discusses five reasons to own a dental practice: Make twice as much money, Build equity in the business, Tax planning benefits, Ability to save in pension plans, Being in charge

Financial Aspects of Dental Practice

  • Discusses EBITDA and financial models in dental practices
  • Criticizes corporate dentistry models
  • Emphasizes benefits of private practice ownership
  • Recommends building a practice to $3 million in collections
  • Discusses overhead management and profitability

Practice Acquisition vs. Startup

  • Compares buying an existing practice vs. starting a new one
  • Discusses patient acquisition and practice growth
  • Emphasizes importance of location and market demand
  • Recommends buying an existing practice in most cases
  • Discusses financial aspects of practice acquisition

Mid-Career Dentist Strategies

  • Addresses concerns of mid-career dentists
  • Discusses practice metrics and overhead management
  • Emphasizes importance of hygiene department profitability
  • Discusses fee adjustments to maintain profitability

Exit Strategies and Financial Planning

  • Discusses exit strategies for dentists nearing retirement
  • Emphasizes importance of financial planning and wealth accumulation
  • Discusses practice valuation and transition strategies
  • Recommends proactive tax planning and financial management
  • Emphasizes importance of accountability and regular financial review

Action Items

  • Dentists should focus on clinical skills and education to improve speed and case acceptance (06:18)
  • Dentists should aim to own a practice sooner rather than later (42:05)
  • Dentists should obtain monthly financial statements for their practice (42:08)
  • Dentists should set and regularly review wealth accumulation goals (42:14)
  • Dentists should implement a tax planning strategy (42:36)
  • Dentists should regularly review and adjust their financial plans (45:15)

Connect With Us

Topics: dental practice ownership, financial planning, practice transitions, EBITDA, corporate dentistry, private practice, practice acquisition, overhead management, exit strategies, wealth accumulation

Transcript

00:00
00:00
Dr. Richard Offutt
Welcome to the Simplify  Dentistry Podcast. My name is Richard Offutt. I’m joined by Dr. Mustafa Shah-Khan. Our guest today is Charles Loretto, partner at Cane Waters and Associates in Dallas, Texas. He is the founder of NDP, the National Dental Placement. And I am happy to say that I’ve known Charles for 12 to 14 years, and I’ve known Kane Waters for the same period of time, and. And it’s a real exciting thing to have Charles come and talk to us. Charles, welcome to Simplify. 


00:31
Charles Loretto
Hey, it’s awesome to be here. I. I know we had a chance to kind of catch up, and it’s been a few years since we’ve had a chance to. To see each other, but you’re looking great. I’m lying, Booth. Pleasure to meet you as well. 


00:46
Dr. Mustafa Shah-Khan
Nice to meet you, Charles. Thank you for joining us today. 


00:48
Dr. Richard Offutt
You know, Charles, I have that. That face that’s perfect for radio. So it’s one of those deals where, you know, you’re either lying or, you know, lying or blind, one of the two. But I appreciate it. I appreciate it either way. But. But I’m excited to talk about these, These topics today. I think that as I’ve listened to a good bit of your. Your podcast, both on your own podcast, Transition Talk, as well as when you’ve been the guest and lectured at different. The different other meetings, I will tell our listeners that Charles has spoken at 51 of our dental schools and spoken to nearly 30,000 dentists. So when you think about the scale of that and the scope of the people that he’s talked to, this is definitely not his first rodeo. 


01:36
Dr. Richard Offutt
So, Charles, let’s begin for a minute with those kids or young people that you talk to in the dental schools. You go in and you’re the speaker. You’re the man. So what are. What are you saying? 


01:50
Charles Loretto
So many years ago? It’s like when you first. First of all, I’m just passionate about teaching, and I love going to schools. And I first got kind of the nod when one of our speakers, I, you know, worked at Cane Waters as an employee for years. And then I quickly figured out, like, hey, you set these speaking engagements up. You go and educate Dennis. He creates a relationship they call you, and then they engage. So I was the guy that was setting up the speaking engagement. I was doing it for our advisors, including the Cane of Cane Waters. And we had a person that was supposed to go to the school, and they got sick. It’s like, well, hey, you go do it. So I don’t know. I was Passionate about teaching on what I thought was important to the student. 


02:35
Charles Loretto
And so I taught on these other things, wealth accumulation, whatever. And I quickly realized that these students didn’t want to talk about that they wanted to be educated about kind of the critical decisions like, you know, why should I own? How’s it going to work? And so I just kind of started developing a craft for speaking to these students. And like you said, I’ve actually been now to 60 schools since then. I run a curriculum at Texas Tech University of 80 business hours. I teach the students there. And I’ve got this one, I would call it speech. I’m well known in the industry for, and it’s called why you must own. And so either the ASDA national meetings or in dental school curriculums, or just simple old school kind of lunch and learns. 


03:27
Charles Loretto
I teach a message and this is basically for the listeners that are not owners, that the listeners that are obviously students, residents or just associates. I’ve got kind of a longer speech, 45 minutes an hour. And it really, if you want to sum it up in just five things, there’s five reasons you own a business, five reasons that you wouldn’t sell, five things that corporate America will never tell you. And number one reason you become an owner is because you make twice as much money. If you go to work out a chair one and two students. You definitely need, you know, two chairs to operate out of. You’re going to do 50, 60, 70,000 of clinical dentistry a month. You’re going to get a $200,000 check. 


04:11
Charles Loretto
What I’m educating the young group is you have to look at dentistry from the restorative side, look at hygiene and go, okay, if I’m doing 700,000 restorative 60amonth, I’m probably checking around 300 hygiene. So I’m trying to make the example of, well, you’re getting paid $200,000, which is 30% of your restorative. You could be making as much as 450 out of the million dollar practice you’re essentially running. So I’m teaching the math on the why, which is number one, you’re going to make more money. Number two, you’re going to build equity in the business. The million dollar business you just bought is worth something now, has the ability to grow and be more profitable with associates. And that’s going to be worth, you know, a bunch of money. So that’s equity. 


04:57
Charles Loretto
Three is tax planning, the ability to run a lot of things through the business. I’m a big proponent being a Business owner, myself and educated many business owners all over the country. So you get the tax plan, you get to save in your pension plan, which is, you know, roughly 90 plus thousand dollars a year now round up to 100,000 with the HSA deduction. And so you got these four reasons. And lastly, you’re just in charge. So my message to young people is they just need to understand their why. If they can understand their why, then we can focus on how they become the owner. And so I’ve got strategies to try to help them. On that podcast that you mentioned, transition Talk, and it’s really pushing them of how to create these ownership opportunities and how to simply close to be the owner. 


05:45
Charles Loretto
And obviously we’ll kind of dive into the rest of this conversation today that we’re having on what those next critical path look like, you know, as an owner. But man, for the young person, if there’s two things that I could tell a non business owner, dentist is number one, clinical, clinical speed, knowledge education is the first thing I would go tell you to do. Go to Sphere, do all the courses, go to Kois, do whatever you gotta do. Get your mind, get your confidence in hand. That eventually turns into, you know, your voice and you know, delivery. Get your case acceptance up. Let’s get the patient out in the chair and out of the chair as quick as possible, the best we can. And we’re trying to get that average, you know, kind of daily number up. Let’s get that up. 


06:41
Charles Loretto
Then let’s obviously, let’s get this business, you know, from an ownership standpoint, understand kind of our benefits and then if we can just do those two things clinical, understand the why, get into ownership sooner than possible. It makes me so happy. I got just, you know, some young person buys a practice and they tell me they disclose. I mean, I couldn’t be happier. 


07:02
Dr. Mustafa Shah-Khan
You know, Charles, the interesting thing about what you’re saying that to me, I’ve always felt like when you first come out, it is clinical skill that you feel like you don’t have and you know, you just know enough to be dangerous. The problem is you don’t know that. You only know enough to be dangerous. So acquiring those skills I think is important. I think that builds the foundation. You can kind of do whatever you want to from there. Then as you get further along in it, you know, the least challenging thing is the clinical aspect of it. Managing the practice, managing the employees, managing the business aspect is the most challenging aspect from that point on. 


07:37
Dr. Mustafa Shah-Khan
But you know, I wanted to kind of come back a little bit to what you were talking about in the first point where you’re talking about just the difference in revenue, difference income, between being an owner and not being an owner. We have a Facebook group, Simplify Dentistry, and there was some discussion recently about EBITDA and different aspects of ownership and then kind of translating out five year models. And the interesting thing that I keep seeing when I look at some of these DSO aspects is they keep talking about even though you become a percentage employee, you’re really not making much less than you used to make as an owner. And that to me is bewildering. I was like, how are they getting this math? Or is the math being unchecked on this? What are you saying from there? 


08:25
Charles Loretto
This is coming from the corporate side, basically saying you’re making about the same. Well, I mean, I totally disagree. I think if you go work as an employee for corporate or for a private practice, that number is the same. You’re going to make 30% of 30%. And honestly, when they come out a young person, I don’t care if they go work for corporate. I really just want them to go work at the busiest possible practice to build those clinical skills up. But the math is the math. They’re only going to pay them on the restorative. So if you’re doing 700 in my example, restorative at corporate or private, you’re making about 200. 


09:00
Charles Loretto
But my point is that you are checking hygiene, you are meeting those hygiene patients and you would be running a million dollar practice and you should have your overhead in that high 50 range if you’re managing all your decisions. Right. The part that you said, that was the challenge part. Let’s manage team, let’s manage the practice as far as like, you know, our supplies and lab, but there’s that margin. And your EBITDA example would be on a, you know, a million dollar practice for some simplicity. You know, it was doing 700 restorative and you know, 300 hygiene for simplicity. We were paying the doctor $200,000 for that 700. The EBITDA after the doctor conversation would be kind of that 200,000. 


09:48
Charles Loretto
What these young doctors are basically getting pitched is come work for me corporate and I’ll let you buy into this stock and here’s the value and it’s going to be worth a lot of money here in the near future. And I like the concept, but the reality is if you really want to capitalize with the whole private equity game, just do it yourself. You become the owner, you build out 1, 2, 3 associates. You go build $3 million of top line collections, keeping that overhead really low. And that’s going to build your EBITDA. Now we take a big, giant number, 400, 500, 600, $700,000 of EBITDA. Let’s go command a 8 multiplier or something like that and get a big enterprise value. That makes a lot of sense to me if I was guiding a young person. 


10:43
Charles Loretto
If they want to, quote, unquote, work in this space, go do it that way. So the capital is on the top level. It makes no sense, in my opinion, to partner with them early on, get that little income and just have to buy the stock with the hopes that company does well in the hopes it recaps at this. I think they’re, I think they’re leaving too much opportunity on the table by going that route. And that’s where those Facebook groups don’t talk about is the representation from what’s the other side and what are you leaving on the table by doing that? Now it’s the equity that they didn’t capitalize on. It’s the money they were not making. 


11:24
Charles Loretto
And you cannot, especially owner of a CPA firm, you cannot discount the fact that all your tax planning, I mean, you literally can run hundreds of thousands of dollars of tax deductions through a business when you own it. And they don’t talk about that at all. 


11:38
Dr. Richard Offutt
Charles, let me bring you, let me, let’s, let’s back up a step kind of in lifetime here. So, so you have a young dentist, he comes to you and he goes, Charles, he goes, I heard you talked at my school. I loved it. I got to make a decision. Should I start a practice or should I buy a practice? And if you could talk for a few minutes about that, I think that your perspective on that is very interesting and I think our listeners would love to hear it. 


12:09
Charles Loretto
So I always start at the end goal, you know, so let’s focus on a half a million dollar practice, does 500 collections. The problem with a 500, $500,000 GP practice, the overhead is really bad. It typically is about 70%. And the reason is because you’re just simply not maximizing fixed costs, meaning the space. You’re not maximizing, you know, your people, you’re not maximizing a lot of things. You just, you’re not just not making much money. But when you can take the same 2,000 square foot print and maybe the same four employees, they work a little harder and faster so I don’t have to double their labor costs. And those same four employees are generating more. And my rent now just went in half because I’m doing twice as much money. The dollar was the same as the percentage. 


13:01
Charles Loretto
It just went from like 10% to 5%. We become more profitable. And so in the end, I need to try to motivate a young person to understand the economics of dental practice. You kind of need to be doing a million bucks. If you could do a million dollars out of a practice, you start to get margin, in this case the profitability. And so in this case the profitability should be 40, 42%, some type of high 50% overhead. So let’s start with that perspective. Now you gotta understand how much is that million dollar practice gonna cost? It’s gonna cost you about, if it’s for sale, it’s gonna cost you about 800 grand. 


13:35
Charles Loretto
All right, so do I buy a million dollar practice that basically makes 400,000, do I buy it for eight or do I buy a practice over here, do a startup and it’s $600,000. There’s two things I want us to think about. When you borrow 5, $600,000 for a startup practice, it’s going to be immaculate, it’s going to be perfect. You have put it in the right spot and you’re set up hopefully for success. The problem I have, you’ve got zero new patients. So we got to back into, well, how many new patients do you need in a million dollar practice? How many active patients do you need? Well, the active patient number in a 2000, in a million dollar practice is roughly between 15 and 2000 active patients. 


14:22
Charles Loretto
So now it’s a million dollar question, literally is how quick can we get to the million dollar practice? And that depends on marketing, that depends on number of new patients. So if I get 30, if I get 40 new patients a month, that’s an amazing number. 40 times 12 is 480, that’s call it 500, you have some attrition, maybe it goes down to 400 people that don’t convert. So about in four to five years you should get to that $1 million mark and that’s fine. But time is wasted. Now working part time over here, if I can buy a million dollar practice for 800 grand or start over here for 600,000 with zero patients, the guy that buys this practice versus the guy or gal that does this, I can take the same million dollar practice, put all My energy in clinical and marketing. 


15:15
Charles Loretto
Now start getting that practice. One million, five to two million. While this practice has taken four to five years to get to the million. Now if you can do a miraculous job of marketing and just put the right spot, high demand area like the state of Maine for example, that state is underserved. You went to Maine, you’re probably going to be doing 60, 70, 80 new patients a month. That’s probably a great place to do a startup in that example. And again, we’re just talking GPS lab practice may be a million dollars in 18 months. Okay. On a startup. So you have to really look at the person, their experience. 


15:52
Charles Loretto
You gotta look at the demand of that particular area and do they have the right people involved from kind of the business management side and marketing side to be able to put those number of new patients. Then it’s just a matter of, here’s both options. Which option is best for you? High probability. It’s the easiest way to spend a little bit more money on something that’s already working. 


16:18
Dr. Mustafa Shah-Khan
Yeah. Charles, I went through the same thing. You know, obviously when I got into dentistry, I was looking at, I was about to sign papers to start up a practice and it was a nerve wracking period because you do start looking at it. I mean, the debt’s high. You know, you ha, you still have to facilitate debt service. You have no patients, you have a beautiful office and you have state of the art equipment, but you got nobody there. And that’s daunting. You know, I was able to find a practice that I bought, which I’m still in right now. And for me, I think it was the best decision that you could have ever had is to walk into something that has patience. And my cpa, who’s doing a podcast with us later, basically said, you know, you essentially bought a job. 


17:02
Dr. Mustafa Shah-Khan
You know, you bought a job and you bought revenue, which is really something that I think is undervalued a little bit when people talk about de novos and startups and things like that. 


17:13
Charles Loretto
One more thing we didn’t talk about too is on this startup, there’s a lease payment. 


17:17
Dr. Mustafa Shah-Khan
Yeah. 


17:18
Charles Loretto
So it’s not just the 600 grand I’m talking about. There’s a lease payment that is going to be another five, six, seven grand. In the practice I bought, when I talked about my overhead at 58%, the lease is included. Okay. So it is. And I, I make a case if you’re a pediatric dentist. I make a case if you’re a Surgeon. I make a case if you’re an endodontist and I make a case if you’re going back to rural America or a very underserved, basically kind of state where you can just like throw a dart and win the game no matter what you hit. Kind of place. I happen to be know those demographics pretty well. Going to Maine next month and spoke to the main, you know, a group there and they’re like, if you can ever share to everyone. 


18:08
Charles Loretto
We need somebody bad. We don’t. We. Competition is not a thing here. We need people to take care of our patients. Like, all right, I’ll try to spread the word. So. But yeah, you’re just trying to look at what these options are and yeah, I agree with you. I want to buy something that’s already running, if possible. 


18:25
Dr. Mustafa Shah-Khan
Yeah. And talking about the lease payment, you know, the other thing that was scary for me is the lease payment, like 15 year lease and it’s personally guaranteed, you know, and you’re like, so you can’t get out of that thing. You know, there’s no way to break it. Which was really scary for me. 


18:40
Dr. Richard Offutt
You know, let’s kind of think about this. So they run across Charles Loretto and they hear him talk and they come away and they go, okay, a buy this practice. And then they go, I don’t know anything about buying a practice. So. So, Charles, one of the things that impressed me most about Kane Waters is that you have, you, you kind of do some preliminary work. Other words, you know, the person doesn’t know they want to become or that they need or they want to be. They want a client for. To. To be. They don’t even know if they need to be a client. This is a young person out of residency, out of school. They’re saying, oh my gosh, it is daunting, as Dr. Chukan was saying. 


19:25
Dr. Richard Offutt
And so one thing I’d like you to talk about for just a minute, and I think this is so valuable, is the type of calls that you take from these people. So you’ve lectured to them. They heard you at the Hinman meeting in Atlanta. And they go, you know, I think I want to call these people and talk a little bit about coaching calls versus analysis calls. And I think that’s such a unique thing that we need to address just for a minute before we kind of go into mid career type decisions. You know, I would like that. 


19:58
Charles Loretto
So we got a big team here, so. But yeah, we believe that you should educate the patient before they hire you. No different than a free exam that you would do, you know, with a patient. So people come to us from all walks of life, all different positions. They could be an employee. I can help those people with personal financial planning. So maybe I just talk about that. Maybe it’s something they want. Independent contractors is an area we can help with where they’re one or two years maybe just going to be the independent contractor. They’re working, they’re waiting maybe for a spouse or something. 


20:35
Charles Loretto
But being an independent contractor is, can be daunting to plan with because they don’t have a good vision and view of how to plan out for FICA tax, state tax, federal tax, what they should be running through as a benefit contractor. So we can kind of look at their situation, see what they’re doing, and then advise them maybe differently. And those areas that we can help with. But many times these young people are coming to me with what your example was. What do you think I should do? Okay. And so we’re looking at it from a quick business analysis where I take a look at tax returns, profit and loss statements, maybe evaluation. And for me, I think it’s simple. 


21:16
Charles Loretto
I mean, I’ve done this for 20 years, so I can look at something latter minutes and quickly see this is good or bad, the vision of it, what the opportunity is, and then I’m ready for questions for our buyer. And so that’s a, it’s a great service because it’s a no cost and obligation just to look at something. And I tell people all the time, like I’m going to look at something for one or two times for free. But if you bring me the third bad deal in a row, we’re going to have a talk, you know, because I’m literally on the call with them and I do, you know, a teens meeting or zoom share screen. I’m like, here’s how to figure this out on your own. 


21:54
Charles Loretto
So the third time you come back to me, you’re kind of bringing me something, you know, I’m going to bless. Then after that, obviously, all the due diligence that we would do of combing through tax returns and trial balance sheet, looking at every single transaction that happened last couple years, come up with their own valuation to help guide the person through the process. So that’s through our transition department, you know, ndp, where that podcast rests. 


22:17
Dr. Mustafa Shah-Khan
So do you ever get the call from somebody who’s really straight out of school and has heard You. And it’s like, look, I know at some point I want to do this, but how do I get myself ready to do it? What are all the things that I need to do? Help guide me to build the thing. So when the deal does come, I’m ready to do it. 


22:38
Charles Loretto
So that’s literally where 250,000 podcasts or 250,000 plays on those podcasts leave. Because this is my motivational tool, an educational tool to walk them through the process. So the. The biggest. The biggest thing I would say the letdown or my most frustrated moment when talking to students and residents and associates is their lack of just sheer, like, passion, desire. I will do whatever it freaking takes to find an opportunity. They’re kind of like, oh, let me Google here. Dental practice for sale. I’ll email this broker. And no one’s replying back to me. Like, that’s just not enough. So the intent is. 


23:27
Dr. Mustafa Shah-Khan
Sounds like my kids. 


23:29
Charles Loretto
Yeah. Yes. Yes. I literally had this conversation yesterday about my kids going into summers. Like, you will give me daily updates in March of what you’re going to do this summer, because we are not. You’re going to work this summer period, Same concept. So I need you to market yourself to all these practices. I’m teaching them how to do it, teaching them how to have really good leading conversations with those established doctors so that they can vet the good ones and the bad ones that have good opportunities for either ownership or into a partnership. So the short answer is, again, no commercial there. But the NDP podcast is really where. Say it this way. I didn’t create that podcast other than anything. And one reason I’m tired of telling them what to do. 


24:21
Charles Loretto
I’m going to record myself, and you go listen to it and figure this out yourself. Basically, come back with me with some type of good opportunity so I can help you. Because it was a conversation I was literally having once a day, and I’m like, I can’t do it, can’t do. 


24:40
Dr. Richard Offutt
It, can’t take it anymore. 


24:43
Charles Loretto
It’s like the podcast was seven years ago or six years. Whenever we started, I was just like, I just want to record myself. 


24:50
Dr. Richard Offutt
It’s like the kids in the backseat. When are we getting there? Right? When are we getting. 


24:53
Charles Loretto
Yeah, yeah. When am I. When am I stopped talking? That’s. That’s what I want to do. When can I stop talking? 


24:58
Dr. Richard Offutt
You know, the. One of the things that. I think I picked this from transition talk. And. And I hate to beat on that drum, but. But I. I’ve been. I was in practice for 40 years. And I still, I enjoy listening to transition talk it. You don’t have to be young, getting out of the box to right out of school to listen to it. There’s so much value and in the, in that podcast and that’s the last I’ll say about, about puffing up your podcast. But, but it’s really quite good for everyone to listen to regardless of where you are in your career. One of the things Charles, that I found most interesting, and I think I borrowed this from you, is you can tell a lot about the person you’re working with based on the types of questions they ask you. Right. 


25:43
Dr. Richard Offutt
And so what questions should the doctor that he’s in a practice, he owns the practice, he’s not in mid career but he’s definitely closing out the first, third, okay, what kind of questions should he be asking and what kind of strategy should he be taking to be able to accomplish the goal? And you know, because at some point in time we all stop doing what we do for work. Right. And so handle that, take that topic. 


26:17
Charles Loretto
Yeah. So what I tell people is like, look, in the end we’re all in the same, but we’re all doing the same thing. We are working and one day we’re not going to work and one day hopefully we’ve done a good job, we’ve got assets that are sending us a check. So in the end this is a wealth accumulation game that we’re all doing. You happen to be a dentist and I happily be a company that helps dentists accumulate their wealth. And so call it the 40 year old. The 40 year old hard conversation they need to have with themselves is, I’ve been doing this for 12 years. I was an associate for this, I’m an owner for this. Where am I? 


27:02
Charles Loretto
Am I, you know, do I need 6 million, 7 million, 8 million to prepare for retirement based on my budget, based on my goals, based on the one or two house, based on public and private school, what amount of money do I need? Where am I on this accumulation journey? Second is if I’m ahead or behind, in this case, most people are behind. What can I do? What do I need? What’s my critical path now to get there? And it’s going to be a, the obvious, it’s save more, slash, you know, cut spending, something like that nobody wants to do. So, you know, the idea is that let’s start with your business. 


27:43
Charles Loretto
Let’s clean up the financial statement so you can truly understand what your Overhead is so the critical path for that person and kind of a reflection moment is where are my assets? Where do my assets need to be? I’m typically in that example behind. What do I do now with my example million dollar practice with a 62% overhead. What is my critical path over the next 15, 20 years? Okay, and the first thing I would say the critical path is know where you are. Next is know where you are in your practice. So if I’ve got that 62% or is that good or bad in this case, I believe they can be improved. So good financial statements will have good metrics, good KPIs, team costs, assistant, front desk and hygiene. I definitely want those separated. I want to see percentages of my total revenue. 


28:42
Charles Loretto
Typically I’m shooting for a 25% number on team cost somewhere around a 11 12% when I add in both my supplies and my lab costs together, separate line items. And I don’t want to overbuild and my real estate, I don’t want to some 5,000 square foot facility with two tenants that are vacant. I need to make sure I’m managing my fixed costs with my decisions, managing my team costs, looking at all of my direct cost expenses, Something simple as the softwares, I’m using, the credit card merchant services that I’m paying to all my vendors so that I can get my overhead down. Now with this either increased money that I’m finding, I can set some goals to grow it to 11 2. How am I going to do that now? Increase my margins. Take a look at this additional cash I’m going to have. 


29:42
Charles Loretto
How with this additional cash can I play the catch up game for retirement? So maybe the example was say, you know, they’re saving 35 to 40,000 a year, they should be saving 80. Where’s the money going to come from? So you got to back into where am I going and how am I going to get there in this practice then now if I’m clear in the practice that I need to go from a $5,000 day to a $6,000 day and that difference is going to Yield, you know, 100 plus thousand dollars in net cash flow to me, what do I need to do with that money? How do I save it? Tax deferred? How do I get all these tax deductions so that I can basically execute? And it’s like being in a tunnel. 


30:24
Charles Loretto
No light, frustrated, extremely tired, extremely nervous, and at least seeing a light and being able to say okay, I got it right. We’re ready and we can hard charge a little bit more and a little bit more because we have a vision. Now. I can’t tell you the number of people that I’ve spoken to in that space and they just, they’re a little bit lost. Okay. I’m trying to educate and motivate them by looking at their tax return, see what they’re doing. Private loss. See where overheads are at. They give them a little like, all right, buddy, good job. Here’s the critical path. That’s what I love doing on these coaching calls with them. 


31:01
Charles Loretto
Push them a little bit, let them see their own, you know, faults, but also try to motivate them to, you know, you gotta remove emotion from a lot of these people that you’re working. Me speaking to your audience now. You gotta remove motion and basically kind of go in for a checkup every now and then and go, am I doing all this right? Because if I’m doing something wrong, I kind of want some help here. 


31:24
Dr. Mustafa Shah-Khan
So now when you’re looking at something you said that’s interesting to me, you’re looking at the metrics, 25% of being staffing cost. We all know staffing costs has gone through the roof. So are you still seeing that, staying at that 25% or now you saying that the metric on that has moved to 30, 32%, something like that. And. Or are you saying that the production is having to increase to overcome that? 


31:48
Charles Loretto
Look, if I see a practice that’s got a 32% team cost, there’s two things I can almost tell you for certainty. Number one, it’s a 90% PPO practice. Number two, the hygiene is the problem. It’s the hygienists that have the highest commanding salaries of 50, 60, $70 an hour. And in the end, that department has to be profitable. And so what we’re trying to do there is to figure out what is the problem. You got this PPO practice is 90%. We’re overpaying in hygiene. Hygiene has no incentive. And we’re getting all of these write offs. It’s going to be hard. They’re going to have to change that model. 


32:30
Charles Loretto
They’re going to have to change the strategy on the marketing, getting to the right new patients to be able to convert those patients and get off some of the insurance plans so that I can grow from, you know, production of, you know, 1.3 million, but they wrote off 300,000. This is, this is the problem. Or I could need to bring a Hygiene consultant in to fix the hygiene to get them more, you know I would say in tune to getting patients, you know, in and out the door and doing the respective, you know, diagnosis that they should be doing and presenting when they have perio problems. 


33:15
Dr. Mustafa Shah-Khan
Do you see the, say the fee for service kind of practices? Do you see them where they are having to pay for more for hygiene? They’re just kind of recouping it by raising fees or is that exactly. 


33:25
Charles Loretto
You’re exactly right. You’re exactly right. We cannot just let you know employee costs drive and just hit our bottom line. We have to adjust our fees to be to where our model is still profitable. So Charles, one more comment there. We do accounting at Cane Waters for over a thousand dental practices. So this is not just some pie in the sky guy has lost his no idea what he’s talking about. I’m doing accounting for a thousand dentists. And this is where we’re at. This is our 25% number that I’m talking about. They’re able to achieve even through these last couple of years that have been so painful as all of our employees cost have gone through the roof. 


34:16
Dr. Richard Offutt
So Charles, let’s assume that our mid career doc, he’s gotten the right coaching and everybody needs coaching and if I want to get my sorry golf game better, I’m going to need some coaching. Right? So, so we, we not be. 


34:35
Dr. Mustafa Shah-Khan
Able to, I’ve seen it. 


34:37
Charles Loretto
Or alcohol. That’s the only thing I know you want. 


34:40
Dr. Richard Offutt
That’s right. Beer. Golf may be the answer. But, but, but. So we’ve, we’ve have our doctor, he’s working hard, he’s gotten coaching and he’s got, he’s more or less moved through this wealth accent and he calls you up and he goes Charles, I don’t know, you know, I, I just don’t know how much longer I can do this. What do you think I should do? How do you think, how should I approach this? I still love being a dentist. I love the patients. I love all these things. But I’m just realizing I can’t do this forever. How do you handle that when they, when you get that call? That’s got to be one of your good calls, right? On the top 10 of your good calls. So how do you handle that? 


35:25
Dr. Mustafa Shah-Khan
Is that somebody who has already accumulated the wealth or so they, they’re in place. 


35:31
Dr. Richard Offutt
They’ve had the coaching, they’ve Got everything in place. They’ve worked their 12, 15, 20 years, whatever the model takes, right? And then they call Charles and they go, okay, you know, I’ve, you know, my kids are grown. My wife thinks I’m working too hard. I probably am. You know, I’ve gained 20 pounds. I don’t exercise enough girls. I can’t do this forever. Help me. I still love being a dentist. Help me with this. 


35:59
Dr. Mustafa Shah-Khan
They’re in the financial independence period now. It’s just kind of what do I do? 


36:03
Dr. Richard Offutt
That’s right. 


36:04
Dr. Mustafa Shah-Khan
How do I get out? Or what is the end game? 


36:07
Dr. Richard Offutt
Yeah, how do you structure? How do you coach that? 


36:10
Charles Loretto
So let’s talk about, because I’m a numbers guy, so let’s just say the age is 60. Let’s say it’s a billion 3 GP practice. You know, he or she, in this case he is gotten just towards just kind of a bread and butter practice now kind of referring the stuff out, 30 new patients, you know, so it’s solid. Solid GP practice really is. I’m asking questions like, hey, you know, where are you financially? I’m doing really well. I’ve got, I don’t know, 6 million liquid perfect. What about debts? No debts. What are your, you know what he’s asking? What’s their house? Right? They tell me some two and a half million dollar house, I can already know what their lifestyle is. They tell me a million dollar house or less and no lake house, no this, no Cabo house. 


37:05
Charles Loretto
Kids are out, they’re 60, that much money more than likely they’ve got a decent, you know, conservative lifestyle. I think that the $6 million is going to be adequate, basically yielding them some type of, you know, 300 plus thousand dollars, you know, yearly income for the rest of their life. I feel really good about that. So now it’s really backing into that doctor and asking them the question is, sounds like you’re in really good financial state. Let’s just talk about your practice. Let’s back into how you envision transitioning out. I would think that based on the collections of 1 3, it’s definitely can support a second doctor space is now my question. Did a four chair practice, it’s four chairs. It’s going to be kind of a shorter transition because we’ve got a space issue. Give me six tiers, only utilizing four. 


37:50
Charles Loretto
I think we can actually bring the associate in, pull back from four days to three days. Put a lot of dentistry in on the associate. A Lot of new patients, give them some clinical goals on things, maybe referring out. Let’s get their speed up, you know, invest in that with them. Develop a two year plan, do one of two things. A, sell them 100% of the practice or B, we can create a partnership together and maybe do that for a set number of years. Maybe associate one to two, create a partnership and maybe retire out at 65. The point of that is, I always like to say is tell me a timeframe that you feel comfortable with. And so what I usually look for is if somebody says, charles, freaking you, give me a reasonable price for the practice. 


38:41
Charles Loretto
Here’s the coat, here’s the keys out of here. You know, let me tell you something about, you know, operatory three. You got to put a little duct tape on it every once in a while. You got to hit the pedal a couple of times. This breaker here, you got to flip it over here a couple of times. You know, she’s really moody, you know, on Mondays she’s got to leave early on Thursdays because of this. But I’m done. Okay. It’s rare that situation, they’re usually wanting to stay around. They want to transition kind of their patients or legacy patients to somebody they want to mentor a little bit. So I really want to figure out where they are in this mental game, financial game, and I’m either going to coach them. Here’s the estimated value of that business. 


39:32
Charles Loretto
I don’t know, probably 1 million bucks for that million. 360% overhead practice. It’s probably reasonable and fair. Million one we may want to think about if we associate, allow them to kind of stay. Maybe the young doctors, a D4 coming out, probably can’t take over the million three practice, not going to get a loan. So I need to develop some type of strategy, either partnership, kind of a staggered sell or a walk away practice. If they get some GPR four year experienced buyer, it’s four shares. All they want to do is buy 100%. Let’s just value it and sell it then. Yeah, we’re going to go down that road with them. So we’re going to customize, listen to the doctor and kind of figure out a plan for them based on the back end goal of timing of when they want to exit out. 


40:20
Dr. Richard Offutt
You know, Charles, one of the things that I think that is very apparent one from having been a dentist for a long time and two, when I meet people like you is that having a plan that you can execute is so critically Important, regardless of the time in your career. And so I want to say that. And Charles, what would you say to our folks? I want to be. There is going to be a caveat here. I’m not sending Charles away. Just we’re kind of wrapping up the coaching aspect of this. And then, Charles, I want to talk to you a minute about financial decisions the dentist must get right. So if you would just kind of summarize your strategy and your strategic remarks. And then I want to talk about the financial decisions. 


41:22
Charles Loretto
I guess let me ask a question to that. So when I think about the second question, which is kind of the financial decisions that you get right, I usually will kind of walk through some of the key things that we already talked about. So I guess I don’t understand specifically the question. So try to ask that question just a little differently and then let me address that. 


41:41
Dr. Richard Offutt
What would your take home message be to our listeners that have spent the last 45, 50 minutes with us? What would be your take home message? And I guess that would encompass the financial decisions the dentist must get right. 


41:54
Charles Loretto
Okay. Okay. So yeah, let’s just kind of put those two together and from a summary standpoint. So look, get into ownership sooner than later. Absolutely critical, really good. Key financial statements. You need monthly financial statements. I think accountability is super important. We set goals, we need to go back and revisit those wealth accumulation. You don’t wake up with six, eight, ten million dollars. You just don’t. I mean, you might get lucky to inherit it, you might get lucky to win it. But these are half, half percent chances. People that have wealth, they created, you know, business goals, they created savings goals. They have a tax planning strategy. There’s accountability along this journey, you’re constantly revisiting and looking. You got to understand the complexity of tax law. It always is changing. If you’re listening to this and your accountant is not proactive. 


42:51
Charles Loretto
Let me give you a definition of proactive. Proactive is person I just spoke with. They have completely tapped out. 150amonth. They’re doing 150amonth on average for the first eight months of their financial statements this year. And he literally said, I can’t do any more than one point, 1.8. It’s 150. I would take that same doctor. I’d look into 25amazing overhead. He’s netting 700,000. So about 50 to 53% over something like that. I can look at that and say, okay, John, you’re going to make $700,000. Next year we’re going to save, because of his age, $150,000 in a 401 profit sharing cash balance plan. Plus his wife is saving, so another 20. So they’re going to be saving at least. She makes about 100. They’re going to be saving about 170 a year. So I take 800 grand. 


43:50
Charles Loretto
Between the two of them, they make I deduct 170,000. I started deducting another 100 plus thousand of just normal deductions from cars and meals and travel. We’ve got three kids in this case that we’re paying $15,000 a year for. So we’re getting that tax liability from like a eight number down into the, I don’t know, for simplicity, five and a quarter number. I can literally look into next year. The tax, the tax brackets are already out. You can see how much the 25 taxes, you can see it. So let’s go ahead and go into software and budget it. And now I’ve taken all my deductions. I’m telling you what to do. I can literally tell that individual, hey, you’re going to have to pay $150,000 of federal and state taxes. Here’s how we’re going to do it. We’re taking this out of your salary. 


44:43
Charles Loretto
This is how much coming to your spouse’s salary. Here’s the quarterly estimates we’re going to have. This is all based on you doing 150amonth, 1.8 based on all of these things. I’m going to monitor that throughout the year and I’m going to adjust your tax planning along the way. There’s accountability to all of that. You need to go hit your 1150 number. You need to manage this. I’ll manage these other things. Let’s check in to make sure who’s doing where we at in this project. And that is allowing us and the doctor to stay on track. It’s allowing their financial plan to stay on track. Did the market go up 15, 18%. We’re ahead of the game. We’ve only budgeted for 8. The market go down 20. Okay, let’s don’t freak out. It’s a moment in time. 


45:28
Charles Loretto
You know, let’s just see where the year shakes out. We’ll revisit next year if we need to save more because only four years away from retirement, we’re going to do that. Okay, so it’s just developing this plan, both of the business, both tax wise and financial planning wise, having accountability throughout that journey. And for you as the business owner, you’re the CEO, what’s going to get in your way from this is a lot of time, the emotion. I want this, I want to buy this. I don’t want to do that. I don’t want to work, I don’t want to, you know, something. I want to something. And I really like my guy, you know, he or she. It’s, it’s those emotions that really, in my opinion, have been a biggest. It’s the hardest thing for people to do is make change. 


46:20
Charles Loretto
Because a lot of times these relationships people have, and once you get out those relationships and get on the right course, you know, you gotta, you can improve your chance of really getting to where you want to go. Against assumption that some of those people are directing the wrong way. If I see somebody’s going down the right path, you know, like the 60 year old that’s got 6 million bucks and I mean, I don’t need to bring them into Cane Waters. I might just bring them in to transition them and help them with valuation transition services. And they don’t maybe have to go down the cane waters route because, quote, unquote, they don’t need it, don’t perceive they need it. Absolutely. The critical path is maybe just the transition strategy. 


47:01
Dr. Richard Offutt
Charles, I’m telling you, I, you know, I’ve always enjoyed working with Cane Waters. I felt, I felt that the information that you all bring to the table was helpful for me. I have many friends that are in your thousand dentists and I really appreciate it. I really appreciate the information. I appreciate how hard you work and I just. For all our listeners, I would, all of us would thank. Thank you, Charles, for coming and being part of Simplify and Dr. Chican and myself, we thank you very much. 


47:31
Dr. Mustafa Shah-Khan
Thank you, Charles. 


47:33
Charles Loretto
It’s been fun, man. I hope that you can see the energy and passion I have. I definitely want to educate and motivate people for that change for the better and certainly want to promote private practice dentistry and help people with any of their, you know, life or transition financial planning goals. So, no, I appreciate the invitation to be here and happy to help any of your listeners with anything that we can. 


47:57
Dr. Richard Offutt
Charles, we will put your information, make it available on our social networks. So I appreciate you very much. 


48:08
Charles Loretto
Oh, man, thanks. Thanks, guys. I appreciate you so much. Appreciate it. 


48:12
Dr. Richard Offutt
Thank you, Charles.