"Planning Your Exit" - Legacy, Value & Peace of Mind (feat. Derek Strong)

Thinking of selling your dental practice in the next few years? 🦷💼 In Episode 35 of The Dental Domination Podcast, Dan Brian sits down with Derek Strong, a financial advisor at Hemingway Wealth Management, to break down everything practice owners need to know about transition planning, practice valuation, and protecting your legacy.

Whether you're five years out or just starting to think about what's next, this episode will help you:

✅ Clarify your exit and retirement goals
✅ Avoid common financial pitfalls and burnout
✅ Understand how to get top value for your practice
✅ Protect your family, team, and future with smart estate planning
✅ Build a business that thrives—even when you step away

Derek works with dentists across the country to create personalized transition strategies that align with their personal and professional vision. This episode is packed with practical insights and expert guidance that every dentist-owner should hear—no matter what stage you’re at.

🎯 Ready to scale your dental practice and position it for long-term success?
Book a free strategy call with DentalScapes: https://www.dentalscapes.com

👍 Don’t forget to like, subscribe, and leave a ⭐⭐⭐⭐⭐ review if you enjoyed the episode!

DISCLAIMER: Derek Strong is an Investment Advisor Representative offering Securities and Advisory Services through United Planners Financial Services, Member FINRA/SIPC. United Planners is not affiliated with Hemingway Wealth Management or any other entities referenced. This is meant for educational purposes only. Listeners should consult a financial professional before making investment decisions. The S&P 500 is an unmanaged index and cannot be invested into directly.

Transcript

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All right, welcome back to the Dental Domination podcast. My name is Dan Brian I'm the co-founder of DentalScapes scapes, the host of this crazy old thing. And we are here today. I'm super excited to talk with uh a friend of mine, Derek Strong. He's a financial advisor at Hemingway wealth management, working with, uh you know, healthcare professionals, dentists, dentist owners. And today I think we're going to dig into something that's pretty timely, pretty relevant, you know, as a lot of Dentists out there are considering transitioning out of practice. We're going to be talking about legacy planning specifically and how you can approach that not only within, you know, the nuts and bolts of it, but also in terms of mindset and thought process and some of the things that you need to be considering when you think about selling your practice and transitioning out. So in any case, Derek, I'm super excited to have you here today. Thank you so much for joining the show and um You know, I mentioned you're a financial advisor. You're based in Minnesota, but you can work with clients around the country. What can you tell us a little bit about your background and what you offer? Yeah. Thanks a lot for having me, Dan. Um, yeah, it's fun to be here. I don't get to do a lot of podcasts, so it's, uh, always fun to see where they go. But I, yeah, so I'm based in Minnesota. I grew up here. I've lived a couple other places, you know, just throughout my life. Um, and you know, love it here. I love sports. So if I'm not doing, uh, you know, this type of work, I'm spending a lot of time outside. Uh, but really, you know, I love the strategy and the partnership with business owners. I think that's really what I. gravitated towards and really part of it is when you run a small business you're responsible for everything and at some point you got to figure out like what am I gonna put my energy into and what am I going to allow other professionals and staff members to take over. So we'll get into some of this but you know my main focus is financial planning and then investments for you small business clients and health care is my favorite but I work in you know a number of industries. Awesome. Awesome. Well, sounds good. So, you know, as we, as we think about this topic here today, and I think, like I said, it's top of mind for a lot of folks and there's a few reasons for that. think, you know, the, the dental profession is in a lot of transition right now. There's a lot of private equity coming in. There are, you know, DSOs group practices, um, lot of opportunities maybe that there weren't before in terms of, acquisition now within the industry. So, you know, let's say though, just as a starting point, let's say I am a practice owner. And I'm coming to you and I'm saying, Derek, I'm thinking, you know, probably within the next, you know, maybe three, four or five years thinking about transitioning out of practice, um, selling, uh, and where do I start? mean, what, what's the starting point? Where, where would you advise someone pick up there? Yeah, so, you know, and that's obviously the biggest question that people have, right? So typically when I meet with people the first time, whether they're 15 years away or they're six months away, the question is always, my retirement strategy, my exit strategy, whether it's at 65 or 35 is I'm going to sell this, right? But there's not always a lot of thought that goes into what that looks like. And I network a lot with different people and one of them is business brokers. And one of the common things you hear from them is, you know, it does take five years sometimes. And so really it starts with, you know, why do you want to do it? When do you want to do it? And then you can start to build around, uh, you know, what that looks like. And it could be, for example, uh, hiring an associate out of school, right. And then offering them an incentive program to, start to take over from you. Uh, or it could be. you decide you're gonna bring partner with someone else that has another small practice or even a larger practice and and you continue to work as an employee there and You know have been bought out already or over time uh Other ways would be to do something like going to private equity or to a DSO depending on the size But a lot of times the first step is to figure out how do you kind of get yourself out of the the nucleus the center of the whole practice Because typically that's what you get is that they're really without them, without you, there's, you know, what is, what's the value, right? I mean, you have a patient potentially and you have some processes, but you know, likely they're running a lot of it or you're running. Yeah. And you mentioned, you know, clients coming to you 15 years out, two years out, six months out, maybe, uh, what sort of the sweet spot, what would you recommend? Obviously it's better to plan sometime than no time, but you know, what's, what would you recommend as far as when a practice owner should start thinking about a transition? Yeah, so the short answer is easier or longer is better. And the reason for that is part of the transition is really understanding like where your resources go. Right. So to give you an example, so if you just think about investing in general, you have people that really like real estate. You have people that really like private equity. You have people that like to be operators, right? They may buy a business and they want to run it, scale it and then sell it. Right. Or they may just want to start small. and know just kind of be really involved. So if you start early you can look at where are those resources going you know so with the free cash flow are you going to hire another associate are you going to bring out another hygienist are you going to look at potentially buying the space that you're renting so that you can have equity in that in that building and then potentially rent another suite out to another dentist or another health practitioner and so where you direct that money is important and sometimes people and a lot of people that are very active in their business, you know, or have a business mind as opposed to just being more of a, you know, a dentist at the core would look at it. you know, if I put all my resources into this practice, I might be able to grow it quicker than if I just buy the S &P 500. Right. And so that's a process and their goal at the end might be, okay, I'm to do this 15 years and then sell it. And then that's my exit strategy. someone else might want to take more of a diverse approach because they might want to have some rental properties or other forms of cash flows so they're not required to be working 50, 60 hours a week uh actually treating patients. So part of it comes down to what you want to spend your time on and what your interest is. uh I love that because I think, you know, I think what you're emphasizing there is, you know, it's not one size fits all. It really depends on, you know, what your personal ambitions are and what your goals are and how you want to spend your retirement and what, you know, what you might be, be thinking there. obviously though, the, the, the no brainer here is that the goal is to get the greatest value out of your practice eventually. So to that point, what are some proactive things that the dentist owners that you advise. uh What are some proactive things that you think they should be thinking about, you know, maybe five, 10 years out, whatever it may be, as they start to position themselves to get maximum value out of their practice. Yeah, so that's a really interesting question. And I actually have clients of mine where they've, even if they don't want to sell, they've approached consultants and usually, you you want to have someone specific to your industry. So in this case, you'd want to seek out someone that's dental specific, but someone that can help you with your business processes, right? Because if you set your business up to run efficiently to get the highest valuation for a sale, Yeah. mean, that means that you're also just running a good business, right? So you actually want to be having a structure like that along the way as well. It doesn't necessarily need to be the end game. It's something you should strive for before that. So really it would be looking at, uh you know, different coaches or programs where they can help you just understand like what's the best way to scale your practice. And, know, when it depends on what you want to do too, cause right, some people want to have a lot of different offices. Yeah. people want to keep it simpler, right? They don't want to have 15 to 30 staff. They really want to have just one practice that's close to their house that they're really ingrained in the community with. uh So I think getting that figured out and then finding someone that I'm sure I can help connect people if needed that can really help you uh build it the way you want to, and that will ultimately help what the end game is. Yeah, that coaching is invaluable. I think, um, you know, as you think about some of these scenarios that you deal with frequently in planning for legacy and planning for, um, a transition out of practice, what are some of the common pitfalls that you see that people run into, or maybe they don't quite, you know, maybe they're not thinking about, um, regardless of, of what stage in their career they're at, maybe they're not thinking ahead. What are some of the traps that are out there, the obstacles that you would, you know, caution folks to look out for? Yeah, you know, I think so one of them is concentration risk, right? So when you typically when you look at people that own or operate small businesses, dental specifically as an example, you know, if you look at a balance sheet or you look at their net worth, right, they might be 95 % concentrated in their dental practice. They might have a little retirement account. They started with a 401k. Maybe they have a house or some. happen or something of that nature. But typically their wealth is very heavily concentrated in one entity, which, you know, can be good because going back to the other thing I mentioned, if you're growing that faster than other investments, that's great. Right. But then because of the concentration, when you have things like pandemics or trade wars or changes in an industry, like with the DSOs, you know, you're, you're introducing risks. where you don't control and potentially, you know, it could go really poorly with nothing you necessarily did wrong. So 2008 is a perfect example of that. A lot of small businesses didn't make it through that. And it wasn't necessarily because they were running a bad business. Something just changed, right? Pandemic, another example. So that's one pitfall is being overly concentrated and not understanding what that might mean for you if something changes that you don't have any control. ah The other one is really just ah is around like just stress and peace of mind, right? I mean if you're really concentrated in that and it's really stressful, then you don't have a way to potentially manage that, right? Because you're forced to go in day to day and do the same thing because otherwise the practice wouldn't run, right? uh So that's definitely another one. And then also just I think the other one is just thinking about these things too late. and then you're really burnt out and you want to be done in three or five years, but you realize it might take you a lot longer than that to bring on the associate that's going to take over, right? Or to find the person that can take over for you, whether it's a private equity company, as an example. Yeah, absolutely. And one of the other things that you advise clients on is estate planning, and that obviously runs, you know, in parallel when you're talking about, you know, the sale of a practice and that sort of thing. What are some of the, you know, ways in which those two areas intersect and that you need to be thinking about and keeping an eye out for as you approach the next stage of your life? Yeah, so estate planning is funny because it sounds trusts and estate planning. It sounds complicated and for it's like for really wealthy people. But interestingly enough, like everyone has an estate, right? If you rent a property, a condo, or I guess the apartment and you have a couple of bikes in there and some golf clubs, I mean, that's your estate, right? Like that. start calling my house the estate. Yeah, yeah. Well, I mean, it is right. So so you're so it's very simplistically, it's just making things sure things are titled correctly so that if, God forbid, something happens, it goes to the right place efficiently, tax wise, time wise, because if you don't do it right, then you end up with probate in state issues and tax issues. So estate planning, when you're transitioning out of a practice, would be making sure, OK, how are we going to sell this or transition out so it's the most effective. And then also if you own a business, typically you do need some kind of a trust to hold those shares. ah And then also understanding do you maybe need something like life insurance because if your business is your wealth and something happens to you and your family is reliant on that source of income and there's nothing else for them to go to, you never want to be having them, you know, be forced sellers because they just need something to pay the mortgage, right? Where to buy groceries. So those are other things too is like, what do you do to make sure that like everybody's kind of taken care of? Even your staff members as well, right? I mean, that's a really big part of it. If you, your staff members are also reliant on you for, you know, for their livelihood as well. Yeah. And in the event, you know, it raises an interesting point in the event that something unexpected and terrible happens. You know, I, as you were saying that I was just thinking actually there's a dentist who lived in, um, you know, a town my mom has a place in and he passed away unexpectedly, you know, over the holidays. And I have heard, I don't know much about it, but I have heard that the, the way that the practice was structured in that kind of left. kind of left his surviving spouse in a little bit of a bind. How can you safeguard that investment for those that you may pass it on to eventually? Yeah, so it's having a succession plan in place, right? It might be someone that knows the practice that can take over. You maybe have some kind of agreement in place where, we're going to go to this bank to buy the family out as an example. So that way they can get their shares out in some form that they're now able to use. It could be someone that's there to just take over the day to day, right? And it could be nothing monetarily, but it could be someone that's just going to take over the operations. So it's really actually just having a written, typically you want it to be written, an agreement where you know what would happen if there is a death or a disability. I mean, it could just be as simple as a disability. Like you're not able to perform the functions that you normally are. So that, and that doesn't always necessarily mean you have to set up anything that complex, but it is just having something laid out with agreement with someone or a group of people. Could even be your closest staff members, right? That's probably who it would be. Or another practice owner that you know well. But something where there's some kind of plan in place so that you're not, the people that aren't involved at all, i.e. the family members typically, aren't having to scramble to figure out what to do. Well, they're also having to pay salaries and keep the lights on. 100%. Yeah. And at the, at the center of this, you know, as we said earlier at the center of this is value. Um, and one of the things that you and I were talking about offline is practice valuation, you know, regardless of where you are again in the process, maybe you're, starting to think about a transition plan. Maybe you're, you know, actively looking to sell. How do you value a practice? It may sound like an elementary question, especially to someone like yourself that lives this day to day, but how do you approach putting a sticker price on your practice and starting to think about what you may be able to get for Yeah, really good question. So there are experts that do that, right? So what I would do is look at, what's the ballpark for your industry where you're located, what you have for assets, staff structure, but typically what you want to do, and some accounting firms do this, but most, what you really want to do is have an expert team do evaluation. And what they're going to do is give you a multiple, typically of EBITDA, which is, you know, there's, a little bit complicated, but basically, you know, looking at things like net cash flow you have for debt, all that, and then they're going to, ah you know, give you a number. And then typically, you can try to figure out like, okay, what things can I do to improve this number? ah But it is definitely a specialty. So you'd want to go to an expert to give you that. So you know, so you can get that. Yeah, 100%. Fair to say you've seen an increase in value of dental practices over the last few years as private equity in that has stepped in and maybe driven some of these costs up. Or is that not actually true? Yeah, that's interesting. So I haven't done a ton of research on that. would, it varies. It typically varies because you know, where you're located is a big deal. Right. So, and the size and all those types of things. I mean, but in general, I mean, if you have a small practice, uh, you know, there's, yeah, there's definitely value to that. Right. I mean, because things have been commoditized and I've heard stories about, you know, DSOs where you think they're run really effectively and that's not always the case. Right. Yeah. may just be a bigger version of inefficiency. Yeah, nice uh Well, Derek, I've really appreciated the insight that you've shared here today If a dentist is listening to this show and is saying, huh, you know This is something I should I should maybe spend a little bit more time on uh You know, and we're all guilty surely of putting important things off Where would you advise them to start? know right now? What are a few easy steps that you would take? You know today or the next day if you're hearing this and saying I should spend some time thinking about my transition plan or my legacy. Yeah, so I would say the first thing, understand what you want personally. Okay, so I just finished a book, it's called The Five Types of Wealth. And one of the things it talks about in the book is like, what's a number that's important to you, right? Some people it's a massive number, know, $100 million. Sometimes it's a smaller number, right? And so I think the first thing is understanding like, what do you want out of, you know, for you and your family? And then, you know, as funny as it sounds, because, you know, AI is obviously the buzzword, it's not a bad idea to look at something like JetGPT or Perplexity and plug in some of your questions to get a framework. Because, you know, I use it all the time, but it's 60 to 70 % right. Right? I mean, like it gets you in the direction, but it may at least open your eyes. Okay. This is kind of the process someone would take. These are some of the people that I should, you know, start to network with or reach out to and go from there. 100%. Very cool. Well, Derek, thank you so much for joining the show today. If folks wanted to get in touch with you and maybe talk about transition planning or legacy, what's the best way to get in contact with you and where can people reach you? Yeah, so I mean, you can pass my contact information if they reach out to you directly, but otherwise my email is Derek, D-E-R-E-K, at HemingwayWealth.com. Also, LinkedIn's great, just Derek Strong. I'm on there pretty frequently. ah And then I'm happy to just talk, to bounce ideas around people. ah You know, we don't necessarily have to engage in something to have an interesting conversation. ah So those are the best ways. Cool. Yeah, I will throw all of that contact info as well as the link to your LinkedIn profile in the show notes So folks can check that out there if you are listening today and you enjoyed what you heard I really appreciate you tuning in so to speak um Please if you would be so kind take just two seconds and leave us a rating five star rating on Spotify or Apple podcasts or wherever you get this show I would really appreciate it as the best way for us to reach other dentists, owners, and practice administrators out there that we can potentially help. So I really appreciate it. Derek, thank you so much for dropping by today. I really appreciate your insight, and I have a feeling that a lot of folks listening will too. Awesome. Take care.