DEO's Financial Secrets to Grow Dental Organizations: The 9 Required Clarity Tools

By Ken Kaufman and Ashley Kaufman

"Hands down, Ken Kaufman is the number one resource in the DSO space regarding finances. His level of exper

• Language: English
• Publisher: DEO Dental Media Publishing
• Release date: Nov 29, 2022
• ISBN: 9781544538549

Ken Kaufman

Ken Kaufman has held leadership and executive positions with many companies for almost two decades. In 2012 he was named by Utah Business as the CFO of the Year. Ken earned a B.S. in business from BYU and an MBA from the University of Georgia in finance and entrepreneurship where he was the most outstanding MBA student of his class. He has committed his career to helping the rising generation of entrepreneurs realize their full potential. He speaks and writes frequently and, in between a weekly date-night with his wife, spending time with his seven children, and other church and volunteer activities, he mentors business students and tries to add value to all of his relationships

Book preview

]>

cover.jpg

]>

Advance Praise

Hands down, Ken Kaufman is the number one resource in the DSO space regarding finances. His level of experience as a CEO and CFO uniquely equips him as a thought leader. There are no more dental financial ‘secrets’ when Ken is your resource. He’s literally written the book on the subject, and you are missing out if you don’t have it as your guide.

—Gary Bird, CEO and Founder at SMC National

Ken Kaufman and I have worked in multiple industries together, and he has always amazed me in his ability to make complex financial reporting seem simple and straightforward. If you have an executive team, a new accounting or finance team member in dental, or anyone else on your team who could benefit from improving their financial literacy in dentistry, this is the book for them.

—Emmet Scott, CEO of CDP, author of DSO Secrets, President of ADSO

This book is a must-have for every dentist entrepreneur’s bookshelf! It is a clear and concise guidebook to finding what we all want and need in our businesses: the clarity to make the best decisions moving forward.

—Taylor Hawes, SVP and Chief Financial Officer at Pacific Dental Services

Had this book existed five years ago, I’m certain my bank account would have at least five million additional dollars in it…and I’d have more hair. I’m so thankful for Ken’s gift to take extremely complex concepts and make them simple and applicable.

—Eric J. Roman, DDS, Partner at the Dentist Entrepreneur Organization

This book needs to be mandatory reading for every dentist entrepreneur! You wouldn’t start your journey without a compass. And Ken’s work in this book is exactly the financial North Star you need to help you build a great dental organization.

—Darin Acopan, EVP and Partner at the Dentist Entrepreneur Organization

I’ve known Ken for a number of years now and witnessed the impact he’s had on the financial growth of leading dental organizations. He’s become a sought-after advisor and expert to DEO members and throughout the group dentistry industry, helping dental businesses mature their financial approach and plan for growth. I’ve found that when Ken talks about dental organization finance, you listen. You can count on his practical advice to steer you in the right financial direction.

—Jake Puhl, CEO at the Dentist Entrepreneur Organization

This is a must-read for anyone focused on operating a dental practice. When it comes to dental finance, Ken Kaufman is a clear thought leader and the go-to mentor for many CFOs and finance leaders. Finance professionals at all levels of experience will benefit from the clarity and guidance Ken provides.

—Phil Bounsall, Executive VP and CFO at Vista Verde Dental Partners

Ken Kaufman sets the standard for financial leadership in the DSO space. He is able to break down complex situations and provide clarity and actionable insights.

—Patrick Nelson, CFO at Platinum Dental Group

Ken Kaufman is one of the most genuine, knowledgeable, and generous people I’ve ever had the opportunity to work with. I have no doubt this book will quickly become required reading for dentist entrepreneurs, finance leaders, and anyone responsible for the performance of a business. Thank you, Ken, for making this a reality and using your gifts to empower others with knowledge.

—Josey Sewell, RDH, Partner at the Dental Operating System and the DEO

Ken Kaufman is a master in the DSO finance space, and his open and clear teaching manner speaks to the highest executive as well as to the brand-new dental school graduate. Our group would not be where it is today without the knowledge and guidance that Ken has provided us over the years as we have navigated the DSO space.

—Dipesh Patel, CEO at Blueprint Smiles Dental Group

Dentists often become dental practice owners. The problem? Dental school does not prepare them to meet a payroll or understand finance and accounting. This book is a sympathetic bridge to encourage the dentist in the entrepreneurial journey, with entertaining stories and specific finance wisdom. A must-read.

—Nathan Chitty, CFO at Operation Dental

Finance can definitely be a subject that is not always easy for those of us who are not what you might call ‘finance savvy’ or who do not have a background in accounting! However, Ken has made finance simple to understand, and he also includes some excellent tips and tricks that I’ve implemented in my business. Whether you are already finance savvy or not, I have no doubt that you will walk away with new ideas and ways to improve how you do things. Plus, it’s really a great read, easy to understand and follow, and is an all-around enjoyable book!

—Jackie Brown, Executive Director of HR at Community Dental Partners

In addition to dozens of financial nuggets, Ken is dropping DSO knowledge bombs on every page of this book. I highly recommend it!

—Hollie Williams, CPA and CFO at Rodeo Dental & Orthodontics

Ken combines finance with dental knowledge in his book that makes it a tremendous resource for anyone wanting to build a DSO.

—Luke LaManna, CFA and Co-Founder/Managing Partner at Cottage Row Partners

I wish we had this book a decade ago. Partly told in Ken’s voice, partly told in a story format that drives the message home, DEO’s Financial Secrets to Grow Dental Organizations is chock-full of wisdom to bring your group of practices to the next level financially.

—Mark Rudolph, Shareholder at Elliott Davis, LLC

Every successful project begins with selecting and using the right tools, either physical or conceptual. Whether you have the financial tools to run a successful dental business and haven’t quite mastered using them or don’t even know what to look for, picking up this book is a great start. Ken draws on all of his experience as a master of finance in the DSO space and shares his insights with us here in a relatable, down-to-earth way. This book may just be the tool you’ve been missing.

—Ed Dallwein, CFO at Riccobene Associates Family Dentistry

Finally, a book that simplifies and connects the world of dental and finance. Thank you, Ken!

—Jodi Evans, Founder and CEO at Revolutionary Tribes

Ken is the perfect blend of finance and DSO expertise. He gives freely and is a true thought leader in dentistry.

—Chris Pham, CEO at Coastal Kids Dentistry & Orthodontics

Ken Kaufman is a master teacher of all things finance. This book is going on my shelf and will be a ready reference for the rest of my career.

—Craig Copeland, Chief Dental Officer at CDP

Ken knows dental, DSOs, and finance!

—Nick Korhonen, CFO at Corus Orthodontists

]>

Copyright © 2022 Ken Kaufman & Ashley Kaufman

All rights reserved.

First Edition

ISBN: 978-1-5445-3854-9

]>

Contents

Introduction

1. You Need Clarity

2. Anxiety Slayer

3. Financial Leadership

4. Accrual Accounting

5. Historical Reporting

6. The IMPACT Standard

7. Qualitative versus Quantitative Data

8. 90-Day Cash Forecast

9. 12-Month Rolling Forecast

10. 5-Year Financial Model

11. DSO Structure

12. Financing Strategies

13. Associate Compensation Models

14. Associate Equity Models

15. Ranking File and Benchmarking

16. Growth versus Maintenance Opex (Operational Expense)

17. The Importance of Capex (Capital Expenditures)

18. ROI Analysis and Project Prioritization

Conclusion

About the Authors

Where You Can Find Ken

]>

Introduction

I’m Ken Kaufman, and I’ve worked as a CFO since 2004, and specifically in the dental industry since 2006. I’ve worked at or consulted for several high-growth DSOs with up to 80 locations. Over my 20+ year business and finance career, I’ve discovered that clarity is the most vital tool to drive growth. I wrote a book about the subject some years ago, presented at numerous conferences, and have advised hundreds of dental entrepreneurs. I also founded a mastermind group of over 100 dental finance leaders, the Dental Finance Forum, and we take on and solve the most complex and nerdy finance topics and challenges you can imagine!

I’ve identified the most common pain points and challenges of dental entrepreneurs, and instead of repeatedly answering the most pressing questions face to face, I’ve decided to put my expertise in this book as a way to reach more people and make this knowledge shareable. I’ve seen all the common mistakes and errors and view it as my calling to help you avoid these traps and pitfalls. My biggest joy is helping a dental entrepreneur like you get unstuck, empowering you to take charge and grow your business. The book you hold in your hands is the most comprehensive treasure trove of specific dental finance secrets and clarity tools I’ve taught over nearly two decades.

This book is also designed to be a resource for the accounting and finance team members that dental entrepreneurs hire, both in-house and outsourced. My goal is for this book and its contents to become the de facto standard for financial leadership and management in the dental industry. Once you’ve finished reading, I urge you to share this book with the finance leader in your organization and to encourage your peers to do the same.

My co-author, Ashley Kaufman, is majoring in English in college, has worked for a DSO for over a year, and is a budding novelist. She has created Julia’s story as told in this book to illustrate the life of a dental entrepreneur, brilliantly molding Julia into a relatable character striving to overcome some of the most common challenges you face. You may find yourself empathizing with Julia. Every part of her story was written by Ashley. All of the technical and how-to content was authored by me. We’re a father-daughter team focused on helping you get the clarity you need to succeed. I supply the expert dental finance knowledge (and excellent dad jokes), while Ashley provides a dramatization of how all this finance information can help you overcome many of your most difficult problems and avoid many others.

Will This Book Put You to Sleep?

The format of this book is a little different than most, primarily because Ashley was a little afraid I would put you to sleep with all my boring finance talk. Honestly, I had the same concern. Have you ever heard of an amazing dental finance book that’s a real page-turner? Yeah, neither have we. But give us a chance, because we think this one might be!

Ashley starts off each chapter with a scene from Julia’s life that will feel surprisingly like your own as a dental entrepreneur. At just the right moment in Julia’s story, Ashley masterfully passes the baton to me, letting me drop in some of my experience and wisdom on the subject, and then I hand it back to her to wrap up the chapter and lay the groundwork for the problems Julia will tackle in the following chapter.

You get to watch the whole story play out while simultaneously being empowered with implementable solutions to your problems and tactical how-to content that you and your team can rely on for years to come.

Is This the Right Book for You?

This is the only accounting or finance book you’ll need on your bookshelf as a dental entrepreneur, but it’s not a magic wand to wave over your business to solve all your problems. This book will help you navigate the confusing and overwhelming functions of accounting and finance and show you how they impact your growing business and efforts to scale your operation. I’ll share all the knowledge and secrets I’ve learned, but this book is not a substitute for hiring a professional who can apply all the Financial Clarity Tools™ presented in this book to your business. When the tools are working effectively, you will start receiving customized data and insights tailored to your specific business, and the clarity they provide will become surprisingly addicting.

This book will help you understand the Financial Clarity Tools™ necessary to identify what you need, when you need it, and how to get it. It will support you in asking for the right things from your financial experts, setting up appropriate procedures, and getting a comprehensive overview of the financial aspects of your business. If you’re looking for a magic bullet to solve your current and future problems but aren’t serious about building a real business, this book is not for you.

However, if you want to take matters into your own hands and are committed to learning the tried and true dental finance secrets to aggressively and sustainably scale your business, pull up a chair, and let’s get started.

]>

Chapter 1

1. You Need Clarity

Thank you so much, Doctor. You have no idea what this will mean for my family. Amelia’s voice cracked over the line, tearing through the thick after-hours stillness in my dental practice. Heavy, dark clouds hung low and threatening, blocking out the setting sun, but I was still able to glance at my DDS on the wall written out to Dr. Julia Miller. Somehow that bright-eyed graduate hadn’t pictured the depth of complications, messiness, stress, and overwhelm that would come from owning and running five dental practices.

Of course, Amelia. It happens to everyone, I reassured her, tracing each stack of bills with the fingertips of my free hand. Amelia had been a friend of mine since high school, and considering the long list of financial worries she had just recited, fixing her knocked-out tooth for free was the least that I could do.

If only solving my own financial problems were so easy.

After we hung up, I leaned back in the office chair, closed my eyes, and let out a groan.

Sandra? I lifted my head up so my voice would reach my operations manager’s office, just down the hall from mine. Sandra was working late, pulling payroll together for next Friday. Would you come in for a moment?

I heard the sound of her chair scraping back and then hesitant footsteps along the vinyl floor. The hallway was darker even than my office, due to the rugged ’80s paneling that I had yet to replace.

Add that to the list of things I can’t pay for.

That had been one of the reasons for hiring Sandra—ideally, having an Operations Manager should have smoothed out my finances. Seemingly the opposite had occurred.

In all fairness, however, no one could say that she wasn’t trying. Just the fact that she was still here at the office on a Friday night was testament to that reality.

The door creaked open, but my eyes were still stuck on the stacks of bills in front of me. There were six piles: one for each of my five practices, and one last pile for lucky me. Sandra, make a note that Amelia Borne is coming in tomorrow for an emergency procedure, and she is not to be charged.

Um, Doc, I don’t think we can do that.

I looked up at Sandra for the first time, and goodness, she looked exactly like I felt.

Stressed. Beyond stressed. Makeup was smudged under her blue eyes, wisps of blond hair falling between her gaze and mine.

I don’t know how to tell you this. Sandra held her breath for a moment and then let it all out with a whoosh of air. We’re not going to make payroll.

What? My cry burst out, shock streaking down to my toes.

We’re short. Sandra stepped forward, handing me a sheet of paper, a printout of what was obviously her payroll spreadsheet. She pointed at the bottom line, a hideous red number. We’re short by forty thousand dollars.

My heart sank as I stared at the page.

No. No, no, NO.

You’re kidding. I couldn’t believe it. Wouldn’t believe it. I know we don’t have much cash in the bank, but is it really this bad?

I’ve done everything I can think of—called Origin Bank, checked all our invoices, everything. I have no idea what to do. Sandra sank into the chair in front of my desk, limbs folding inward as if to hold the chaos in. Finality intensified her next words: We’re not going to make it.

My breath came fast, sharp, in and out, in and out, thoughts racing, stomach plummeting.

Doctors who own five dental practices don’t freak out, I reminded myself, but my breathing didn’t slow. I couldn’t calm down. I couldn’t do this. I couldn’t fix all the problems heaping up—

My phone rang, piercing the heavy silence, and I brought it up to glance at the screen for only a moment. Aidan. I silenced the call with a small pang of regret, knowing that my husband would be angry with me for doing so but not having time to apologize again for staying at the office late.

We have till next Friday, right?

Sandra nodded, then backpedaled. But we start the bank transfers on Wednesday.

Okay, I said, beginning to gather my defenses together again. Then I barked out, I guess I’ll have to handle this. Frustration bubbled down to my fingertips as I tapped the desk.

Sandra’s eyebrows shot up. Julia, you can’t fix this.

I whipped my eyes to hers, anger turning my ears hot, my mouth opening to retort, but she cut me off.

Every month we’ve been getting closer to this conversation, and every month you pretend like everything’s fine. Her words shot like arrows from her lips, dipped in sarcasm. You don’t get it. Unless something major changes—

I know, Sandra, I shot back. Then I finished the dire sentence she had begun. Everyone’s going to walk.

A heavy, sullen silence of despair fell, both of us digesting what this meant. And suddenly it hit me, like a baseball bat to the skull, like a head-on collision, like a ton of bricks onto my back, that Sandra was right.

I really can’t fix this.

Just go home, okay? I’ll call you tomorrow.

Sandra, her eyebrows drawn and lowered, but seeming to understand that nothing more could be done tonight, disappeared from the room. The sounds of her gathering her things and then leaving the practice echoed down the hallway.

Failing to make payroll would mean letting people go, letting my employees down, letting go of my dreams. Swiping at my eyes, I struggled furiously to pull myself together.

I could keep it together, even facing the many unread emails from my bank, demanding a reason for all the tripped covenants.

I could keep it together, even though my associates were slowly turning against me.

I could keep it together, even with the bank demanding an audit that I couldn’t in a million years actually pull together.

I could keep it together, even though I had no way to finance all of the growth opportunities surrounding me.

But this?

This means—

Failure, I whispered to myself. Never did I imagine that my practices would come to this point. My business was going under. It was failing. If I didn’t get payroll scraped together, all my employees would walk, and that would be the end.

Of everything.

I was failing. This business that I had built on my own from the ground up represented my best efforts—and, as it turned out, my best efforts to run these practices simply weren’t good enough.

My phone rang—it was Aidan again—and this time I answered. Hey. Setting the phone on speaker, I rested my head in my hands and pressed my fingers into my throbbing temples. How am I going to tell him? I’m so sorry, but I’ll be home soon, all right?

Aidan’s voice cut past my question to ask one of his own. Where are you?

The office. Where else would I be? I said dryly.

Do you know what day it is?

Yup, he’s mad. Just like I’d assumed he’d be.

I was getting tired of this little question-and-answer session. Friday? Five days before disaster?

Yeah, Jules, it’s Friday, he said, and disappointment seeped through the receiver. You were supposed to drop me off at the airport today.

Your conference, I realized, heart sinking. Aidan, with his job as a healthcare attorney at one of the big law firms in town, had been looking forward to this conference for months.

I skewed a glance at my desk. I’ll be home soon, okay?

It’s fine. I called an Uber.

My eyes practically bulged out of my head. Aidan, that’s like sixty-five dollars, I said indignantly.

Yeah, but a canceled flight would be five hundred, Aidan snapped. We’ll have to go lighter on groceries the next couple weeks, but I had to do something. You weren’t going to.

Excuse me? I felt my face flame.

Nothing, Aidan lied.

Uncomfortable silence followed.

So you’re gonna make your flight? I had to check. Five hundred dollars was a lot of money to pay for a canceled flight.

Yes, barely. But Jules, I don’t know what’s going on anymore. This isn’t the first time you’ve forgotten about me. You’re always so busy, and I want to help support you, but you’re just so wrapped up in your practices. His words were slow and plodding with resignation. And frankly, even with all the time you’ve put in, our money situation has just gotten worse.

I couldn’t deny that, but it cut to the core. After everything I had done—for us—was he really belittling my efforts like that? I gritted my teeth together to hold back each biting retort that bubbled up from my throat.

I heard a car door slam shut over the line, and Aidan said, Sorry, I’ve got to go.

More background noise followed, and I wondered if he would say what he never failed to say before.

Love you. The line clicked off.

A crinkly sound drew my attention to my lap, where I had unconsciously taken Sandra’s payroll attempts paper and crushed it in my increasingly tight fists.

Staring at the paper, Aidan’s words echoed in my head.

This isn’t the first time you’ve forgotten.

Our money situation has just gotten worse.

Angry, I pushed the tears of frustration away with my fingertips, willing myself to keep it together. Gratefully I reflected that no one was around to witness my red eyes and clenched jaw. I slammed the paper into the trash can, unsatisfied by the gentle crackle it made as it hit the bottom, and then barely kept myself from kicking the metal container.

Just barely.

Deciding that staying was no longer productive, I stood, grabbed my things, and walked to the door, pausing with my fingers on the lightswitch. I glanced around my office with its stark white walls, shadowy and foreboding in the dim light. It was positioned in the back of my third practice, Julia’s Smiles, and I had thought it would be such a good workspace for a successful doctor-turned-entrepreneur.

Did I say successful? Yeah, scratch that. Just one look at my messy, disorganized desk was illustrative of the fact that my entire life, business performance, and marriage, were, well, a mess.

I killed the lights.

Everything was dark as I entered the lobby. The large windows were being pounded with rain, showing only dark gray skies. I stood and looked around through the shadows. There was the reception desk, the gumball machine, the soft yellow chairs for the waiting patients, the box that held picture books. My dad’s office had always looked like this.

Wanting to be just like my daddy had helped me through dental school, through scrimping and saving and waiting on tables to try to keep my student loans as low as possible—not that that had worked very well. Having an impact on the community, just as he had, was basically my only dream in life. Nothing made me prouder as a kid than to hear someone say, Wait, Julia, is your dad Dr. Richard Nelson? And I would nod an enthusiastic yes!

I paused at the five pictures on the wall, one for each of my five practices: Dial for Smiles, Zero-Cavity Kids, Julia’s Smiles, SuperTooth, and Kind Dental for Kids.

Somehow, that vision of being a dentist like my dad had never included the reality that I had no visibility of what problems tomorrow would bring. It had never included the heart-wrenching grief that I still felt, day after day, even two years later, in dealing with his loss. It had never included the emotional sucker-punch I received when I realized that payroll was due in five days.

And that I had an empty bank account.

I attempted to blink my tears away as I walked to the door and pulled out my key, but one dripped down my nose. Another off my chin, plopping onto my dark hair.

Pull it together, Jules, I told myself in helplessness. A third tear fell.

I stared stupidly at the large logo on the door; an emoji-like face grinned above the practice’s name.

I glared back. I wasn’t in the mood, now that I knew that my fantasy of a successful business was just that: a fantasy.

Realizing that my thought process had taken an extreme downward spiral, I turned my key so the door would lock once I got outside. Peering out of the glass, I could see that the heavy clouds, finally, under so much pressure, couldn’t handle it anymore and had released their fury on the world.

Pulling the door in one swift motion, I ran out of my practice. The wind blew my hair back, stinging my ears. Rain pelted me, and within moments I was wet to the skin.

I neared the corner of the strip mall. Almost to the car, I thought in misery. Ducking my face to shield my eyes, I watched my black leather flats slosh back and forth.

A shock of cold water hit my head, soaking my hair and shoulders. I gasped and stumbled forward, completely drenched. Looking back, I saw the gushing waterfall that was pouring from the gutter overhead.

I had walked right through it.

Sopping wet, chilled to the bone, I slumped to the ground, no longer caring, my last energies wasted.

An absolute failure, I