The Group Dentistry Now Show: The Voice of the DSO Industry – Episode 20

Mike White, CPA Principal, Health Care, CLA, provides best practices for dentists and DSOs during the COVID-19 crisis, advises on what practices should be doing right now, how to preserve cash flow, how to communicate with landlords, banks, vendors, teams, furloughing versus terminating teams members, the new CARES act, PPP, SBA loans, and much more.

EMAIL: Mike.White@claconnect.com  and visit CLA’s COVID-19 resources at www.claconnect.com/campaign/covid-19

Our podcast series brings you dental support and emerging dental group practice analysis, conversation, trends, news and events. Listen to leaders in the DSO and emerging dental group space talk about their challenges, successes, and the future of group dentistry.

The Group Dentistry Now Show: The Voice of the DSO Industry has listeners across the North & South America, Australia, Europe, and Asia. If you like our show, tell a friend or a colleague.

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FULL TRANSCRIPT

Welcome to the Group Dentistry Now show. I am Bill Neumann and we have Mike White, CPA here today with us. And we are going to talk about unfortunately all things COVID-19 but he’s going to really lay out some plans. He’s working right now with a lot of DSOs so he can give you a little bit of insight as to what’s going on, what some best practices are, and how to deal with this really unprecedented crisis. So Mike, thanks for being here today. I know you’re super busy.

Mike White CPA:

Yeah, no, thanks for having me. And I think it’s important for us to get information out as much as we possibly can during this time. For those that have advisers and those that don’t, I think it’s good to meet and share some insight. So thanks for having me.

Bill Neumann:

Yep. So for folks that don’t know Mike, and most of you probably do, I mean he speaks to just about every DSO conference that up until recently was happening and now there aren’t any. So you get to see him again. But Mike is either on a panel or he actually has his own session that’ll talk about financial and accounting services for emerging groups and DSOs. But again, thanks for being here. Mike is with CLA, CliftonLarsonAllen, a financial services firm, a CPA, accounting CFO services. Mike is going to get into exactly what services CLA provides. But Mike specifically focuses in on the dental space, so that being emerging dental groups, DSOs, solo practitioners. And Mike is based in Texas, and we will talk a little bit about again what CLA provides for their clients, specifically in the dental space. And we’ve got some questions for Mike on how to handle this crisis.

Mike White CPA:

Yeah, thank you and thanks for having me. And it’s funny when you say based in Texas, I think up to this point, I was on the road for eight weeks straight. So going from on the road to not leaving my office which it seems like all day, every day, not leaving my office. It is such an unprecedented time. But CLA is a CPA firm, a national CPA firm, about 120 offices nationwide. I had merged in my practice. Some of you know me as Mike White from MWA, I’m now Mike White from CLA.

Mike White CPA:

So I came in to lead the DSO team along with, lead the dental team along with Chris Abell in Phoenix. We kind of worked through that whole process. But we do focus on everything from solo practices to some of the largest DSOs in the nation. Me and my team tend to focus on the emerging group 3 to 15, 3 to 25 vocation groups and that’s been a fun place to play in. But everything from tax advisory and tax accounting and of course CFO services. What we’ve been doing a lot of lately is advisory and helping practices through this time. So I’m looking forward to getting into that a little bit.

Bill Neumann:

Well thanks Mike. And so Mike is going to give us some hopefully some words of wisdom here. And again, unprecedented time. So the advisory service is probably all you’re doing now and they’ve pushed back some dates for filing tax returns and estimated payments. So I think everything probably you’re doing right now is advisory.

Mike White CPA:

Yeah. For me specifically, I don’t do taxes anyway so it works out really well.

Bill Neumann:

Good for you.

Mike White CPA:

But my team does, my team does. So yeah my team does.

Bill Neumann:

There you go. So let’s talk about general preparedness. So just from a standpoint of preparing right now, what should practices be doing?

Mike White CPA:

Yeah. And so many practices today I’m still talking to that are a little frozen in the situation as far as what they’re doing, what they should be doing and what conversations they should be having. Right out of the gate, we need to be looking to preserve cash flow. And how do we preserve cashflow, especially if we don’t have a lot of money coming in from insurance, you’ll still be segregating your insurance to see what is collectible, what can I work during this time. Who should be working it? And we’re going to get into the team part of this in a little bit. Now I’m talking to your landlord. “Can I defer my rent? Give me three months. I’m not asking for three months free, you can add it to the back end of my lease, but can you give me three months?”

Mike White CPA:

Now I’m talking to your banks. Most banks, now there are a couple that I’ve heard that are not doing deferments at this time, but if they say no to you, keep asking. With appropriate interest only. But the critical thing, I’ve seen this one so far but that doesn’t mean there isn’t more, make sure it’s on a balloon payment at 90 days. If you’re trying to preserve cash and you don’t have much cash coming in, in 90 days you may not have a whole lot of cash to catch up all your loan payments at once. So make sure they reamortize your loan and stretch those out a little bit. Talk to your vendors, make sure your mission critical vendors are in place and caught up to current, again part of your cashflow management but caught up to current. And then work with them on any additional expenses that may come in over this next time to see if they’ll delay those a little bit.

Mike White CPA:

And then of course start talking to your team, and making that determination. Going into March 31st, that critical day of, do I furlough my employees or terminate them? And of course we’ll get into more details there, but that’s going to be a critical date and it’s preservation of cash. Who are you going to keep? If you have an operations team, if you have centralized ops, who are you keeping during this time to help you manage the schedule and get everybody scheduled for recare? Who are you keeping for billing management? Do you need your entire team? Probably not, but maybe one or two people. Maybe keeping your accountant in place to help you from an advisory, a cashflow management and vendor management, that type of stuff. Those are the things that we should be doing now, is assessing our situation. For those of you who’ve seen me speak, I’m a big budget guy, so there’s no better time to start the budgeting process to understand at least the next 90 days, 180 days.

Bill Neumann:

Yeah, great point about the budgeting. All right, so big question, terminate versus furlough?

Mike White CPA:

Yeah. I’m going to continue to come back to cashflow. I’m certainly not an HR person and I want to make sure you talk to your HR or employment lawyers or whatnot to make sure you do it properly. But just to give you insight, if you furlough your team or you close your office, you’re effectively keeping that team on and they could be applying for credits, or forcing you to pay into those two payroll credit acts where you had the 80 hours if you tested positive for COVID-19, or the hundred… And the 12 weeks, sorry. If your family’s sick or they’re out of school or whatever, there’s five specific buckets they could fall in. The first one, the 80 hours is up to $511 a day for 10 days, $5,110. And the second is the $200 or up to two thirds of their pay per day for 12 weeks.

Mike White CPA:

So if we’re looking at preserving cashflow, we have got the float. Now remember they’re credits. So what the government is saying is we should be able to apply for credits against that compensation up to those limitations. But if we look at it, they’re saying that they’re going to try to do that on a quarterly basis with your 941. So if your next 941’s not till the end of June so let’s say refunds coming at the end of July, maybe August. Again, this will be the first time they ever do this, can you hold on that long in order to do that? If not, you should be looking at terminating, getting with your employment lawyer or your HR and terminating appropriately. Not to hinder your employees and unfortunate situation that that is, but you’re trying to preserve the business. And there’s a lot of practices nationwide that are doing this. I would say the majority of my DSOs are terminating. Terminating and laying off is effectively the same thing, but most of them are terminating. Some of my solo practices are determining to furlough or closing the office, if you will. But it really comes down to, can you afford this for three months? Six months, whatever it may be.

Bill Neumann:

Right. And that’s another big question. What’s the timeframe? And it varies right now state-to-state, nobody really knows.

Mike White CPA:

Nobody really knows. And Bill, you and I were talking just a bit ago, the president came out last night and said that the recommendation is until the end of April. Originally it was Easter. And of course that could continue to stretch depending on where we are in the spike of these cases and what’s happening. And then of course it becomes a state-by-state, even county-by-county. Here in Texas, the State of Texas is determining not to make a county decision. So all of the county, the governors and Congress and all that stuff, they’re letting them decide what they’re going to do.

Mike White CPA:

When we look at Washington, they’ve recommended that dental practices be closed to May 18th. And California practices, they’re talking June is when they think they’re going to be opened. Oregon came out last night and you and I were texting yesterday, Bill, as far as there’s something going around saying possibly September. I think that’s got to be clarified. We don’t know that one for sure so I don’t want anybody to work in a panic, but there’s a lot of dates being thrown around is really what it comes down to,

Bill Neumann:

Right. Yeah yeah. A ton of confusion.

Bill Neumann:

So, let’s talk about… So we addressed the furlough versus terminate. What else with your team members?

Mike White CPA:

Communication. This is a very scary time. As human beings that we all are, this is a very scary time for all of us. We don’t know… I myself, I’m with you Bill. I myself wake up at two o’clock in the morning. I used to be an early guy at 3:30 or 4, but now my new time is 2. And this morning it was 1:56. And I’m not sure why it’s getting earlier and earlier, but there’s just so much that’s going through all of our heads. Your employees are in the same boat, you’re in the same boat. So, communication. I’m still getting some CEOs and some operations and all that good stuff that are having those conversations on a regular basis with the team, giving them a weekly update. Here’s a weekly town hall. I just want to get you some information on where we are.

Mike White CPA:

And then of course, being ready. The biggest thing is at the end of this, dentistry isn’t going away. We’re going to have to stand this back up. So what does that look like? Here we are about week one, week two, depending on where you are in the nation in this process. I’m going on two and a half weeks being home. But when you start looking at this process, give it one month, two months, three months, we have to open our clinics back up. What does that look like? So I think you start shifting the mindset today of what’s next and how do we open our clinics, and keeping that communication with your team going right now is going to be critical. So we’ll dive into that, opening the schedule back up here in a little bit.

Bill Neumann:

Oh great. Good, good. So again, we addressed this a little bit earlier on, but so how long should a practice or a group of practices plan to close?

Mike White CPA:

Yeah. So I think that’s a local state-by-state when they’re looking at what their plans are. Again, here in Texas, most of them are looking at probably the end of April. Now, probably beginning of May after last night’s presidential order or recommendation I should say. In Washington they’ve been kind of given a clear defined May 18th. I know several states have been given a defined number. I think for all intents and purposes when we’re scheduling recare and getting our patients rescheduled that we’ve missed at this point, we go after that first date. We say, “Okay, this is the date I’ve been given at this time. Let’s start filling that schedule at this time for then. If the date changes again, then we worry about that then.”

Mike White CPA:

And again, it’s just like we’re communicating to our team. We’ve got to communicate with our patients about what are we doing to sterilize our office? What are we doing for preventative measures? How are we preparing to have the right equipment in place in order to serve you? Because of course everybody’s been talking about the depleted, you know, equipment that’s needed, the PPE that’s needed for all of us to operate. Of course they’ve been recommending dentists turn your supplies in. So when you start looking at that, making sure you’re getting the necessary supplies to be able to open by that date you’re planning to open by. If it’s four weeks from now, three weeks from now, six weeks from now, what is your plan? And then the bigger conversation is we kind of dive into that is, the longer this stretches out my belief is, and again, this is an assumption we’re making, it’s an assumption we’re modeling out is, we’re going to go from zero to, we’re not going to go back to a hundred patients, or 100% of patients.

Mike White CPA:

If this goes on 12 weeks, we’ll probably end up at a 50% schedule or a 40% schedule, 60% schedule. With so many people unemployed, no dental insurance, or just scraping by with cash, so the last thing they need to do in their minds, they need to put food on the table, rent. They don’t think… Will they prioritize dentistry? I’m not telling you what they will. Will they prioritize dentistry? We hope they do. It’s necessary. Oral health that we think we’re learning during this time is very critical. But will they look at it that way and will they fill our chairs back up immediately? So if this goes a few weeks, I actually think we can get 110% of our schedules. To open up hours, open up days, and really try to start getting our patients that missed up during this time as opposed to stretching out like we would.

Bill Neumann:

Yeah so that’s the great unknown. Are they going to come back online right away, or is there going to be a delay? And is it 50%? Is it 80%? Nobody really knows. So yeah, that’s-

Mike White CPA:

And you got to plan for those what if scenarios.

Bill Neumann:

Yep. Right. And to your point, the longer it goes, certainly the more devastating it’ll be for really the country. Because it’s not just dental practices that are going to be offline, but it’s going to be people losing their jobs. So it’ll be interesting to see. But let’s hope we look at sometime in May. [crosstalk 00:00:14:27].

Bill Neumann:

We talked a little bit about how long you should be planning on closing and that really depends state-by-state right now. Let’s talk about, do we… We talked about furloughing, right? And then terminating, but do we keep anybody right now? So who should we retain?

Mike White CPA:

Yeah. So if you’re an emerging group. Let’s just say and define emerging group right now. And I’ve always looked at buckets. So zero to three locations. If you’re at zero to three locations, you probably don’t have much of a corporate team today. You’re probably doing a lot yourself. You’re wearing a lot of hats. You’re that CEO, CFO, COO, HR, one and the same and you’ve outsourced many functions. At that point, if you’re going to keep anybody it may be your outside advisor that’s going to help you with cashflow modeling. And it may be working with your outside HR company to help you transition employees out and transition them back in.

Mike White CPA:

And of course, whoever’s doing that billing for you, if it’s one person or one per office, definitely keeping at least one of them. Or halftime, maybe not full time. But getting them to work insurance and it may be you stepping into work those claims as well. But certainly when you’re at the smaller scale and you don’t have a big corporate team, when you start looking at three to seven locations, three to eight locations, you may have one regional manager, you may have a billing person, maybe you brought bookkeeping inhouse.

Mike White CPA:

The people that you’re keeping are about the same. It’s just are they outsourced, insourced and where are they? But I’m really looking at for at least the transitional period, getting the scheduler to schedule the backend. If we have a date, and again I’ll pick in Texas, our date is middle of April. If we have our date here then I would start filling that schedule for that date so that we can open and start worrying about the team maybe a day before or two days before for training, reacclimation, cleaning, sterilization, inventory of what we have during that time. And that’s when we start working through it. But we want to start collecting money during this time as much as we can, work off those old collections, try to understand what our plan is around that. Work on communication with your vendors from an accounting perspective, and what’s going on and who’s going to defer you, who’s going to shut you off during this time.

Mike White CPA:

And then HR of course, is we talked about transition of employees. But the regional manager may not be as busy right now. Maybe you need them to help communicate to the staff, but this is a good time at that level to really reach out and be at the forefront of communication. As you get to 7 to 15 and 15 and up, you’re starting to build more and more of that team inhouse. I would keep as little, as few functions as possible to just get the necessities done. And those necessities are getting the schedule filled up on the back end from a planning standpoint, getting your vendors worked out, and then of course taking care of your employees at the HR perspective. That’s what my main recommendations are. And it may not be that you keep them the entire time, but certainly you need some help during this transition time.

Bill Neumann:

Yeah, there’s a lot to really prepare for, well, to deal with now. And then as the world comes back online, as everything comes back online and dentists are able to provide services again, how do you have that schedule already full? And that’d be a challenge as well. So scheduling makes sense. Somebody that’s going to deal with your vendors, collections, make a lot of sense as well.

Mike White CPA:

Yeah, and I even think some of the things that you could be doing as a leader is communicating to your patient base again. And I know I brought that up earlier, but killing, stopping all media with your patient base, letting them know that you guys are okay and this is what we’re doing, getting to know the team a little bit, letting them know that you’re taking precautionary measures. Letting them know what you’re doing in the community. How are you helping in the area? I mean all this stuff is goodwill. All these people are looking for, one, good information. All of us turn the news on way too much during the day right now and seeing terrible information. So let’s see some spotlights, let’s see some good information and let’s give those patients some comfort in what you’re doing to make sure they’re taken care of when they come back. That’s going to be key. We want them coming back.

Bill Neumann:

Right.

Bill Neumann:

All right, so let’s switch gears a little bit. Let’s talk about loans. Should a dentist be taking new loans? They may need to or they may at least be thinking about doing something like that right now. What are your thoughts?

Mike White CPA:

Yeah. So there’s several loan options today and there’s information still coming out. So I’m going to talk through, and a lot of this is just recommendations I’ve been learning and talking to the bankers of the world, if you will, a lot of them frequently. But we go back to that cashflow plan if you will. What are you doing to stockpile reserves and protect the ultimate business? Where we don’t need to leverage, I don’t like to leverage. However, if we take this down to… There’s the express loan that was out there. 25,000 is getting raised a little bit as well. A lot of people are not spending time applying for that one. So it becomes the EIDL loan, or the disaster recovery loan, which is the traditional product up to $2 million. You go through your underwriting process and everything there.

Mike White CPA:

That is a loan for awhile that I was telling everybody to apply for. I’m actually telling everybody to apply for EIDL and the CARES Act loan. You can’t take both of them, but make sure you have a plan for one of them to receive if you will. The terms on it’s fairly favorable. And the EIDL loan, the disaster recovery loan, there is no debt forgiveness. I know a lot of people are asking about the debt forgiveness, which is part of the CARES Act, but at least it gives you funding if you need it and if you aren’t able to get the CARES Act loan. So again, apply for both. But EIDL loan is you’re going through the SBA website, you’re filling out the application, it’s a short process. They really need three things. The 4506-T, your personal financial statement, then it’s an income verification type deal. There are several people that are still helping people through that, including CLA. We actually have an SBA team that we’re working with on our team that’s helping people fill out these applications as well.

Mike White CPA:

Then we shift gears into the CARES Act. The CARES Act is a new loan. It came out Friday. Everything got approved Friday evening as we know. A lot of interpretations. I’m still reading through the 880 pages document that it is. And a lot of banks trying to get their hands around what happens for them. Because this one is, they delegated the four day meeting. They’re going to work through their SBA lenders in order to get these loans out there. So when talking to the banks of the world, and we won’t name names this morning, but all of them are actively communicating. When I was emailing at 2:30 this morning, I had banks responding to me already this morning. So when we’re looking at this process, they’re all just as active as we are trying to get this out.

Mike White CPA:

But the CARES Act has the forgivable portion. Right now as we understand it, it’s going to be based on two and a half times operating payroll and there are limitations there. So up to a 100,000 in compensation. It will be phased down after that. There is forgivable portions for payroll, rent and utilities and your debt payments if you will. But since you’re only getting to borrow up to two and a half times your payroll, it’s not going to cover everything on that forgivable portion. And they haven’t really given a whole lot of details on what’s forgivable and what’s not and all that good stuff. Or I’m sorry, how it will be forgivable. It is the forgivable portion for those four buckets, apologies. But it’s how will that process. What other application will I have to fill out in 12 months or 13 months or whatnot.

Mike White CPA:

There are contingencies on having your payroll back to a certain point by the end of June, up to 75% of that point by the end of June. So as we start looking through our cashflow plan of when do I hire my employees back, or if we don’t know that we’re going to be operational by then or fully operational by then, will we have 75% of the team back up? So I want to make sure I’m very optimistic. It’s an incredible offer. It’s something that the government is doing a great job putting together, but I want to make sure as we run the entire cashflow plan… I’ve had a lot of conversations over the weekend of people saying, “I’m just going to hire everybody back, and that’s going to pay for it.” Well, yes and no. But if this goes more than eight weeks, which is the forgivable portion, then we may have some issues if you will and your floating payroll beyond that point. And of course, when will the loan be forgiven? Well it’s forgiven in 12 months.

Mike White CPA:

So, as you’re working through this, absolutely apply for the money, EIDL loan and the CARES Act. Work with your local banks first. If you’re unsure if they do SBA lending then ask around or reach out to me or you and we can make some recommendations. And definitely use that funds to support their business during this time. So a lot of information, I know.

Bill Neumann:

It’s great information. Thanks for cutting through a lot of the chaos. I mean it’s definitely an interesting time but at least there are some options out there. And so your recommendation is to apply for both.

Mike White CPA:

My recommendation is apply for both. And I know there’s a lot of nuances and I rambled off a lot of information there, and there’s even more that I’d have to be telling you if we’re being specific. So when you’re talking to your banker, when you’re talking to your team or again, reach out to us and I’m happy to talk through it with you. Let’s have that conversation about what do you specifically need to do. So by default, apply for both and then find out what’s the situation.

Mike White CPA:

I actually have some practices that the EIDL loan makes more sense to them, even over the forgivable portion. So when you’re looking at that situation don’t just think grant money is the better option. In some cases, that EIDL loan, it’s incredibly cheap money longterm and it really works out in some people’s operations to help them better. So be mindful of that and it’s not one size fits all, at all.

Bill Neumann:

Okay, that’s great. Really, really, really great information, Mike.

Bill Neumann:

So, and next and last question, which is where can we get these resources? Because we heard all this great information but it’s a lot. So where can I read more about this? How can we contact you? What other resources are out there?

Mike White CPA:

Yeah. And on the contact us standpoint, I believe Bill, you’ll put our contact information up there and just go ahead and put my personal email up and have people reach out to me directly. Because I’m fielding a lot of questions myself and working with my team and all that. But CLA Connect has a COVID resource page.

Bill Neumann:

We’ll link to that.

Mike White CPA:

And you’ll link to that. And Group Dentistry Now, I know you’re putting out a lot of great content right now as well. So I would say you start with the resources such as Group Dentistry Now and you look at CLAs website. And then go to your state association and the state health policy institute as well to find out what is the recommendations for you for office closures. If you aren’t working with us, we welcome the opportunity. But during this time talk to your CPA. Most CPAs I’m talking to and I am talking to my peers, are keeping up with information. They are talking to their bankers and they’re becoming advocates for their clients because we all want to see you through this. We all want to see this industry survive and thrive during this time. So that’s the biggest thing is, those are the big resources I would talk to. Talk to your advisor or talk to myself, and take a look at what you guys are pushing out at Group Dentistry and let’s have a good conversation and help each other through.

Mike White CPA:

The other thing, just as you mentioned, I do a lot of conferences. I probably won’t be at another one this year unfortunately. But when we start looking at it from this standpoint, peer-to-peer was always great at the DSO conferences. So those DSOs, those other groups you’ve met before, don’t just think because you’re not at a conference you won’t speak to it. I know Emmett Scott’s been putting out some great information and-

Bill Neumann:

Absolutely.

Mike White CPA:

… of his as well. And a lot of these DSOs are stepping up to help their peers. So if it’s not from one of us, by all means reach out to another DSO or reach out to me and I can try to make some introductions if I know them. And let’s all rise together in this situation.

Bill Neumann:

Yeah, great point. The DSOs seemed to be really sharing. So whether it’s peer-to-peer or big DSO to emerging group, that you see a lot of that going on. And I think the industry has always been that way, but certainly more so now than ever.

Mike White CPA:

Yeah. Agreed. I 100$ agree.

Bill Neumann:

Well, Mike White, thank you for sharing. We really appreciate this. This is again, unprecedented times. So I think as an industry and with people like resources like you and CLA we can get through this together.

Mike White CPA:

Yeah, thanks so much for the time everybody. And by all means reach out. This isn’t a sales pitch. I’m here to help through this process and be there just as you are, Bill. So thanks for the time. I appreciate it.

Bill Neumann:

Absolutely. And we’ll have Mike’s contact info and you can reach out to him and the resources that we talked a little bit about. But until next time, thanks everybody for joining us on Group Dentistry Now. Email Mike at Mike.White@claconnect.com and visit CLA’s COVID-19 resources at www.claconnect.com/campaign/covid-19