E53: Podcast: Dr. Howard Farran From Dentaltown On How to Succeed As a Dentist

Kevin: Welcome. This is Dr. Kevin Coughlin. You’re listening to Ascent Dental Solutions with a focus on development, training, education and knowledge. Before we begin with our special guest, Dr. Howard Farran, I just like to give special thanks to Mr. Doug Foresta and his company, Stand Out and Be Heard. Without his expertise, we would not be able to provide this podcast. We hope you enjoy today’s podcast. I can’t tell you how excited I am that Howard is taking the time from his incredibly busy schedule.

If you don’t know who Dr. Farran is, he not only is a dentist, he’s not only an MBA, but he’s also an international lecturer and he’s fast, easy and understands what’s important to our profession, not only clinically, but business wise. I’m a firm believer that the best clinicians in the world, if they don’t have an association and a knowledge of business, they’re in an uphill battle. And if you’re a great business person and you don’t attain basic clinical skills, then you’re also in an uphill battle.

Without any further ado, I’d like to introduce Dr. Howard Farran for today’s podcast. Howard, thanks so much for joining me today and thanks so much for everything you’ve done for the field of dentistry and all the aspects of dentistry. Thank you so much.

Howard: It is a huge honor to be on your show. I’m a big fan of your AD podcast and thanks for uploading on the Dental Town website and the Dental Town app. These kids have an hour commute to work every day and they just love listening to dental podcasts like yours and mine.

Kevin: Thanks so much. I thought what would be valuable to our listeners are basically three segments of the dental profession. I’d like to start off with that first segment, and that’s that new graduate. They’re in their senior year, they’re really focused on just basically getting the hell out of school, getting things started, but they really don’t have a roadmap. With your expertise, your background and all the information that you have coming into Dental Town, what would you say would be the three to five bullet points that you’d recommend for these young graduates just getting started in their career?

Howard: I had an extremely lucky childhood. My dad was dirt poor and when I was ten years old, he saved up his money and bought a SONIC Drive-In franchise. He went from making like $11,000 a year to $60,000 his first year, then he opened up another SONIC every year for nine years. We went from dirt poor and I didn’t even know what an air conditioner was — I didn’t even know that people had air conditioners in their house — to living in the wealthiest area of Wichita, Kansas in United States.

In that church that we were in was also the founders of Pizza Hut, Dan and Beverly Carney, who ended up with 2,800 Pizza Huts that they sold to PepsiCo, the Shah family that started Godfather’s. So when I was a little kid and went fishing, I would sit next to my dad who had nine restaurants, Roger Carpenter who had 100, Jim Williams had 1,000, Roger Carpenter had 2,800 and there was a lot of takeaways from growing up with these guys.

Number one, you would never know any of them had a dime. I mean, my God, they lived below their means. When Sam Walton died, everybody always says that Bill Gates was the richest man in the world it’s because they don’t know addition. When everybody said Bill Gates is the richest man in the world during my entire life, if you look at the Walton family and Sam and his wife Helen and his four kids were like number 17, 18, 19, 20, 21, 22. If you added them up, they were worth the 40 percent of the poorest Americans in that one family. And his desk was a door on two sawhorses and he drove a pickup truck.

Dan Carney, my God! You damn well would have thought he was homeless if you ever ran into the guy. He had these old corduroy pants. I think he only had about five different pants and shirts. They all lived below their means.

And then the second thing that the takeaway was is every one of those legends in the restaurant franchise business, by the time they had five employees, one of them was a fulltime bookkeeper. All they did was master their costs. These dentists would go in a room and they’ll do two MOD composites and I’ll say, “How much did you charge for that?” And they go, “Like 250 for an MOD composite.” And I’ll at them and say, “250! Dude, 90 percent of your practice is PPOs and this plan you got 125. How were you off a Benjamin on each one of these damn fillings? And what did that room cost you?” No idea.

I remember when I was ten years old and I was working at SONIC and I was making a number one cheese burger and I was dressing it and I put on four pickles, my dad picked up that hamburger and threw it at the wall as hard as he could and he said, “Howard, if you’re going to put four pickles on a hamburger, you might as well give it away for free.” And I was like, “Wow! How many pickles are supposed to be on a hamburger?” He says, “Three.” These guys all knew their cost. And by the time they had five employees, one of them was a bookkeeper. It was amazing.

I hired a bookkeeper when I started out. She’s now the president of my company and makes $200,000 a year. It’s all about cost. These dentists, they don’t know their cost. When you go in there and they have practice management information systems like Dentrix and Eaglesoft, they don’t even have an accounting software. So all your day you only manage people, time and money so all their costs were incurred in time, but they bill in units. The PPO price doesn’t even matter. The only thing that matters is what does that room cost for an hour and how much production do you do in that hour.

Southwest Airlines takes 100 percent of all their cost and reduces it to one airline seat flying through the sky for a mile. If that chair takes off where you’re at in Boston and flies to my house in Phoenix and no one’s sitting in it, it still has costs. That plane is not being flown by the tooth fairy, it’s not being pulled by magic fairy dust, it has costs. These dentists don’t even know what an operatory costs because Dentrix and Eaglesoft, those are the two worst things that ever happened to dentistry. They’re the WWI and WWII of dentistry.

The receptionist is out there, she books an hour for two fillings, she doesn’t even know what it is, then she books some lady to come in for a cleaning for an hour, she’s getting $55 for the cleaning and the hygienist is getting $40 and these dentists don’t even know they’re in quicksand. You have to hire a bookkeeper at every position you have.

I’ll go into a dental office and the supplies last month they were five percent, the next month they’re eight percent, the next month they’re seven percent, the next month they’re nine percent. It’s like how do your supply costs vary 100 percent from month to month? But if I hire a bookkeeper, she’s not in health care so she’s not used to inflated wages. Everybody in health care and government and unions are used to these overkill wages that are market reality so you hire outside of health care, outside of government, outside of unions. You bring in a bookkeeper, I can teach her how to be a dental assistant in a month. But then my supplies, if I say my supplies are 4.5 percent a month, then she’s totally organized, puts up all these bookkeeping accounting systems.

Same thing upfront. My gosh, you hire a girl that worked across the street in a dental office for ten years on Dentrix and I’ll ask during the interview how many reports does Dentrix have? Does it have five, ten, 20, 30? She has no idea. I’m like how did you sit on a software system for ten years and never even go up and click this icon? Mainly because what Dentrix and Eaglesoft does, instead of hooking it up to Quicken or Payroll or Peachtree or Microsoft Great Plains Accounting, they sit there and you send in all these wish list features so they’ve added so much bullshit that 85 percent of all the functions are not even used in any dental office.

Anybody go into anybody’s dental office, go to report generator, go to the utilization, none of it is utilized. But when you Marriott, it’s striped down. They only do like seven things to check you in, but they always do every one and you can’t go from four to five or five to six without doing it in order. When you go to return your rental car to Hertz Rental Car, they only do like five things to check you in. That’s why we switched to Open Dental. I have no connection with Open Dental, they don’t advertise in Dental Town. In fact, they don’t advertise anywhere because they’re the best damn software ever because they are open. So you can have your own programmer program right into it and make your own self a dashboard or whatever. But it’s the most open software for your data.

And if you get a bookkeeper in there — what we have to do is we have to dump everything out of Open Dental into Excel spreadsheets and then dump everything out of Peachtree Accounting into Excel and make all these damn reports because the receptionist, you call up and — if I sell bottled water, I make this bottled water for 90 cents and I sell it to 7-Eleven or Circle K for a dollar, I know it costs me 90 cents, I know I make a dime on every one and then they sell it for $1.15.

In dentistry, the average dentist is signed up for about 12 to 15 different PPO plans, he has no idea what he is charging for any procedure, he has no idea what his room costs and then the receptionist is scheduling your only cost, time — the Fortune 500, the SD500 average payroll is 53 percent. That’s what it is in dentistry. The dentist is making 35 percent on 65 percent overhead, the staff is making about 25 percent, lab bill 10, supply is 6, rent/mortgage/utility is 5 – 6, but that’s all spread out over time and the receptionist is just sitting there saying, “Well doctor, how much time do you like for an MOD composite?” I don’t care how much time you like for an MOD composite. What does that room cost and what are you getting? If that room costs $200 an hour and you put in $145 MOD, you just took a $50 bill grant and shredded it in a shredder.

Dentists also do weird things like they only do quadrant dentistry where they’ll say, “Let’s do the fillings on your right side and have you come back in two weeks to do your left side.” And then right next door to him is an oral surgeon that numbs up all four quadrants all day eight times a day, five days a week for 40 years. I just tell them, they’ll say, “I only want to do the right side today.” “Well, due to your insurance plan, it’s a heavily discounted plan. The only way this works is if I do all of them at the same time. I can only afford to do all these fillings that we do all at once. On this discounted PPO plan, I can’t schedule an hour four different times to do four different fillings. The way your plan works, I have to do them all at the same time or I can’t even do them.” And then it’s like, “Oh, okay,” and then they do it.

When you staff your assistants and your receptionist with bookkeepers, they get numbers, they get cost. Some dentists make 25,000 a month on 40 percent overhead, they only got to do $41,000 a month to make 25,000. At 50 percent overhead, obviously, all you have to do is 50,000. But at 65 percent overhead, which is the national average, you got to do $71,500 for the dentistry to make 25,000 a month. And 20 percent of dentists have 80 percent overhead, they got to do $125,000 of dentistry to make 25,000.

The other thing they do wrong is that they’re doing everything right in their mind, like they get out of school, they go to their church, they ask their pastor or the Rabbi, “Hey, I need a CPA. Do you recommend anyone?” And they’re like, “Sure, there’s a CPA in our church, in our mosque and he’s just a great guy. Go talk to Rick.” Rick doesn’t know anything about dentistry. I’m sure he’s a great guy.

But now we got the Academy of Dental CPAs at www.adcpa.org, they got 6,000 dentists on one database, they got the Institute of Dental CPAs at www.indcpa.org, they got another 2,000. But every dental office, every dentist I know that has switched to someone like Cain Watters and Associates, someone who only does dentists, then they’re sitting there because dentists know if all, they just know it all. They’re not a doctor of dental surgery, they’re a doctor of freaking everything. They don’t listen to anyone, so they’re not going to listen to their CPA.

But dentists listen to other dentists because they hang. They hang out with these dentists in dental school. They know everybody that got into dental school got A’s in calculus and physics and geometry, they know how many ATP come out of glucose on the Krebs cycle, they know their homies are smart. So when that American Academy of Dental CPAs or Institute of Dental CPA sits down and says, “Well, Dr. Kevin Coughlin, we have 6,000 dentists and their supplies range from 4 to 8 percent and the mean is 5.25 and yours are 7 percent. Can we talk about that?”

The dentists love numbers. Just kind of like when you’re in dental school and you’re taking a test and they went and posted the computer printout of everybody’s score and what the curve was, dentists are used to that herd mentality with their other doctor homies. So when they start seeing this data bank and they start realizing what’s going on…

The other thing is with PPOs. Let’s just say you’re in Wisconsin, that’s a very different PPO market than New Jersey, which is extremely different than Kansas. And so when you got a dental CPA who’s doing 150 dentists in Kansas, he can sit there and say, “I don’t know what’s correlation or what’s cause effect, but I do know everybody who’s on this PPO here, whether it’s Connecticut General or Blue Cross, whatever it is, everyone that’s on this PPO is running like 68 percent overhead. But we’ve had several doctors, we’ve had five that dropped these two plans and what we saw is that their gross production went from $1 million a year down to $900,000 a year. But their net went from 1.75 to 2.25, which shows you how much dentistry they were doing at a loss because now they do less dentistry and they net more money.”

And then the other thing is your hygienist comes in and your staff, the whole promotion system is based on astrology. They come in your office once a year and say, “Doctor, the earth has gone around the sun and past Uranus and it’s time to give me a dollar raise.” And you’re like, “A dollar raise? My God! I just talked to my dental CPA and I’m paying you $40 an hour to do $55 of cleaning and we’ve reduced all of our costs for operatory. Of course, we took out crown and bridges and applied that to the dentist, but your operatory is costing $90 an hour and you’re doing $80, I lose $10 every single time you do a cleaning. You take an hour. Is there any way you could schedule 50 minutes so I could break even? Or if you go to 45 minutes, I’ll give you a raise.”

But once you get the team on the same page and you build trust and integrity, if you have no trust and you have no integrity, if you lie, cheat and steal, you can’t lead a team, you’re not going to get repeat business, you lose everything in life. And then when everybody starts getting on the same page with the numbers, everybody starts making better decisions. The front office makes better decisions on how much time to schedule.

A lot of dentists are realizing that composites, I mean oil is trading this morning at $71 a barrel and CLEARFIL SE is trading at $1,250,000 a barrel. These dentists say these crazy whacko things like composites last longer than amalgams. When a dentist says that, you almost got to think his mom dropped him when he was a little kid. The average composite lasts six and a half years, it’s a neuroplastic, the [recut 00:16:45], decay and release composite is just much. You take out with a number four, number six, number eight round bar.

These amalgams are half mercury, you’ll never find mercury in multivitamin. The other half is silver, zinc, copper and tin. Every one of them is antibacterial tin, stannous fluoride, that’s tin. Silver diamine fluoride [detrinia 00:17:04], pediatric nursery, everything in an amalgam is toxic. And when you put in an amalgam, those things last 38 years but the thing is an amalgam doesn’t cost anything and they’re fast.

So when you sit there and you start realizing that this room cost you $200 an hour and you’re getting paid $100 for an MOD composite and you can barely do two of them in an hour, it makes you start thinking well maybe instead of putting in a six and a half year old inner plastic composite without an active ingredient, maybe I should just go back to amalgam. And a lot of these dentists are going back to amalgam because their patients prioritize PPOs and price over aesthetics. I can’t make a bottled water for 90 cents and sell it to you for 45 cents. These are what dentists are doing. They’re doing it all day, every day.

Gosh, at this point, I don’t even know what question you asked.

Kevin: I’m going to tell you this, Howard, first of all, the information is terrific. And if I was to paraphrase and summarize, I think what you’re trying to tell these new graduates is number one; live below your means. I know you want a new Porsche, I know you want a Mercedes, I know you want a Tesla. Hold on to it and save some money and spend below your means. Even though you think you deserve it, in the real world, my data says you’re going to be close to $300,000 in debt. And at a 6 percent interest over seven years, it’s going to cost you almost $4,000 a month to get out of debt. So the first $78,000 to $80,000 is going to go just to deal with school debt. So I believe what you’re trying to say is live below your means. Save some money.

Number two; know what the hell your costs are. When you sit there and look at your schedule, say how much time am I planned for and what am I going to generate for revenue? All that’s great, but if you don’t know what your overhead costs are for your business and your personal life, you’re just swimming in a circle going nowhere.

Last, if I was to say what I learned is remember, three pickles are just as good as four pickles and it’s going to put more money in your pocket and your old man taught you the right way.

Howard, I can’t tell you how much I appreciate this. If these young graduates, these people getting started in the profession they wanted to get more information on you, they wanted to learn more about you and how you’ve conducted your business and helped thousands of dentists throughout the country and the world, how do they reach you?

Howard: I would have them go to Barnes & Noble and buy my book in print or audio called Uncomplicate Business. You only manage three things; people, time and money. That book is my masterpiece. I was 50 years old, had an MBA, had been practicing 30 years and collecting a million dollars a month before I wrote that book. It’s my magnum opus. The secret to writing is rewriting. The first draft was 600 pages, second draft cut down to 400, the final draft, 200 pages. That book could tell you everything you ever need to know. And then it costs like ten bucks.

Kevin: Howard, I can’t tell you how much we appreciate that you’re doing this podcast. I know how busy you are. I personally want to thank you and I want to also say, thank you for what you’re doing for our profession. I hope that we can do a follow up podcast with a focus on those dentists who started off with a bang and a flurry, but for a variety of reasons that I think we both know, their practice is not going in the way they wanted to, they’re not accomplishing what they want and it’s sad. And with the proper processes and procedures, their lives could be turned around, not only clinically, but financially, and that’s better for them and their family.

And then that final podcast is how do we prepare that dentist for the ultimate exit strategy. For whatever reason; health, nerves, desire, they know that they’ve got to take this asset and they’ve got to, in most cases, sell that asset. And how do they get the most valuable return on investment for that asset? And I think with your knowledge and expertise, if you’re willing to spend the time with me, I’d love to follow up on those two additional podcasts.

Howard: Kevin, it would be an honor to come back two more times on your podcast. I’m a huge fan of your podcast. And again, thanks so much for putting it up on Dental Town because these dentists tell me they get in their car, they open up the app, they scrawl through the podcast, say what are they in the mood for. I’ve gotten so many great feedback and comments on your podcast on Dental Town. I think what you’re doing is just amazing.

Thank you so much for transferring your amazing knowledge from doing that for so many years and all the, hell you’re at 14 dental offices — to think that some dentist who’s done it for 30 years, who built 14 years telling these little kids that just walked out of dental kindergarten class everything you know is just a noble course. I’m so proud of you. Thank you for all that you’ve done for dentistry and Dental Town.

Kevin: Thanks so much and I look forward to our next podcast. This is Dr. Kevin Coughlin. You’ve been listening to Ascent Radio.