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Jonathan Martin has 20 years of experience guiding dentists and dental specialists through the transition process. In that time, he has helped over 1,000 clients navigate successful transitions with both individual doctors and DSOs, and has overseen more than $1 billion of dental practice sales. He joined McGill & Hill Group in September 2005. He earned a bachelor's degree in accounting and finance and a Master of Accounting from the University of North Carolina at Charlotte. Jonathan is a member of the American Institute of Certified Public Accountants and the North Carolina Association of Certified Public Accountants.  

1. What advice would you give yourself today if you were a 25-year-old entering this industry?

    

   My first piece of advice, aimed at young orthodontists, would be not to believe everything you read or hear. 

    

   In recent years, the nature of publications (magazines, podcasts, etc.) has changed for most industries, including this one.

    

   A great deal of content is provided by firms who pay a publisher in some form to get their content in front of a targeted audience. Therefore, much of what is presented as “education” is actually an opinion or agenda from someone with something to sell.  Folks with the loudest bullhorn (in other words, money spent to be published) get most of the exposure.  While this has impacted the orthodontic industry in a number of ways, one example is that it has led many doctors to pursue affiliations with OSOs in cases where it may not make sense for them to do so.  I’m not anti-OSO—I’m anti-poor decision-making.  It’s an excellent option for some folks, but it’s not a great option for others.   You don’t see much information about when and why it is not the right decision.  That’s a big part of the problem – getting an objective viewpoint.  Everyone has a bullhorn.   My advice is to seek objective information in any and all decision-making, but especially when making life-changing career choices.

    

   My second piece of advice is aimed at professionals, like me, entering into this industry speaking to doctors.  When you’re a young professional with something to prove, you can be inclined to tell people what they want to hear, instead of what they need to hear. 

    

   I learned pretty early that doctors appreciate honesty.  Sometimes, the truth isn’t good news, which can be challenging to deliver earlier in your career.  And it took a while to learn that. It took a while to build the confidence in my own expertise to do that.  I would tell anyone entering this industry that doctors are paying you for your expertise, so don’t be afraid to deliver.  “You can’t afford to sell your practice yet”, “you can’t afford a partner”, and “your practice isn’t worth what you hoped it was worth” – those messages are hard to deliver, but in my experience, doctors really do appreciate your candor. 

    

2. What book, or books, do you give most as a gift?

    

   I have one book everyone should read – The Simple Path to Wealth by JL Collins.  

    

   It’s not a very long book, and it simplifies the idea of financial independence, the power that gives folks, and the indisputable wisdom of planning, and planning early.  A lot of people prefer not to think about money.  I can’t tell you how often I ask a doctor ‘what’s your financial situation,’ and 8 out of 10 of them have no idea where they stand, even  doctors in their late 60s.  It blows my mind.  The statistics, in general, show that less than 10% of people can afford to retire at retirement age, and dentists are people, too; they just have bigger paychecks.  You need to consider when you want to retire, how much your lifestyle will cost, how much you have accumulated, and your plan to get to where you want to be. So many people wait, wait, wait…and this book is a great starting point to break out of complacency.

    

3. What are your thoughts on using practice sale earnings as the primary source of retirement savings? 

    

   Most orthodontists hinge their retirement ability on squeezing every possible penny out of their practice sale. 

    

   That’s one of the many reasons some doctors rush into a corporate sale, because of the potential to sell for a higher price.  As most doctors know, if selling to or affiliating with an OSO, there are strings attached and contingent deal terms that represent a major paradigm shift when compared to how the doctor has owned and operated the practice up until that point. 

    

   And though a corporate affiliation might not be the best option for a doctor, if they have not first prepared financially for retirement, they can’t afford not to sell for the highest price.  By not preparing financially (in other words, saving) for retirement, these doctors haven’t positioned themselves to transition the way they want to; they must transition the way they have to.  That’s the unfortunate, yet avoidable, reality for many doctors. 

    

4. What would be non-negotiable for you if you were to start your own practice?

    

   I would start, or better yet, acquire a practice in an underserved area with less competition. 

    

   This is a long-standing problem that has worsened over time.  Young doctors coming out of residency gravitate toward extensive metro areas that are densely populated, and have a higher cost of living. The problem is that there is so much competition for practices already in the large metro areas that it is really a seller’s market. Beyond that, once established (either starting from scratch or purchasing), you’re still competing with every other practice for patients in what could be considered an over-served area. The path to success becomes much easier in a rural area or 45 minutes outside the metro area.  Practices in such areas are typically more resilient in economic downturns.  Such practices could be up 10% or 20% while the rest of the industry is down.  Being open to buying an existing practice in a rural or underserved area means you have patients in the chair on day one, and ideally the outgoing doctor’s goodwill and friendly transfer of patients to your care.

    

5. What would you put on a billboard that everyone in the industry would see tomorrow on their way to work?

    

   “The Sky Is Not Falling.”

    

   By this I’m referring to the relentlessly fear-based articles, podcasts, and marketing you see in this industry.    “Interest rates are increasing, there’s a new administration, tax rates are changing, the economy is about to tank, and the market is down. It's better to do something immediately!”  Some of these messages, particularly in predatory marketing, are egregious.  I’m trying to convince my kids to go to dental school if that tells you anything.   I’ve been around long enough to see plenty of terrible economic events, and dentistry has been incredibly resilient.  The “great recession” in 2008 when the market was down 40%, a global pandemic in 2020 where most practices were closed for 3 months, and run away inflation and rising interest rates in 2022 to current.  While orthodontics specifically was hit harder than any other specialty with each of these events, it has always come back, and has always stayed incredibly profitable during these blips.  Sometimes income goes down 10- 12%, but the average orthodontic practice produces $2 million, annually.   If you’re doing $2 million with a 55% overhead, you can weather a year or two being down 10%.     The sky is not falling!  Orthodontics, and dentistry in general, is resilient. 

    

6. What do you believe is true in this industry… that you don’t have complex data behind?

    

   The level of consolidation is much higher than is reported.

    

   The ADA Health Policy Institute publishes statistics each year on the percentage of dental and dental specialty practices that are consolidated under Dental Service Organizations (DSOs) or similar group structures.  According to their most recent data, 14% of the dental industry consolidated, with orthodontics as the most consolidated of the dental specialties. Bear in mind the ADA relies on surveys and the pool of people responding, so there are limitations to the scope of data. The prevailing thought is that the industry consolidation is closer to 30% or more.  However, given that these DSOs are not publicly traded, there is no definitive data that shows the true level of consolidation to date.  

    

   Another common misconception involves practice values, although in this case, we do have concrete data that shows that the perception of many is not in fact reality.  There is a long-held idea or “rule of thumb” that all orthodontic practices are worth some static percentage of revenue (say 80%).  Over time, this percentage has increased, but still the same logic prevails, that value is based solely on one practice characteristic; income (collections).  In no way does this line of thinking consider profitability, geographic location, growth, age or condition of the equipment or facility, and any one of these additional factors can make a tremendous difference in practice value – much less, all of them taken into consideration, as should be done.  So it’s fairly easy to debunk that theory, but even after twenty years of valuing practices, I still hear about this formula every week: the idea that a practice is “worth x percent of revenue.” 

    

   Despite tons of authoritative information to the contrary, the public perception hasn’t changed.  For some perspective, last year, the lowest practice valuation that came out of our organization was 51% of income/collections.  That practice had high overhead, it was in a very dated facility in a less desirable geographic location, and income had been declining for 3 years.  It was justifiably a below average valuation.  On the other end of the spectrum, the highest valuation was over 140% of income/collections.  This practice was a multi-location orthodontic practice with very low overhead, rapid growth, and newly renovated and technologically up to date facilities.  Again, its valuation was justified. 

    

7. What’s a bad recommendation that’s touted as an industry “best practice”? 

    

   Focusing only on top-of-the-line revenue growth.

    

   As an example, spending lots of money on practice growth as opposed to focusing on the bottom line, or profit.   That becomes even more important in harsher economic climates, where growth is much tougher.  Growing the top line doesn’t always increase your bottom line. 

    

   I recently spoke with a doctor whose practice had significant overhead expenses.  He was producing $4 million a year with $2 million in profit.  It all started out great, with everything lined up as it should, but the doctor started buying up practices because he wanted to grow his top line.  He grew practice collections to $7 million—but his profit was still only $2 million!  We see this a lot!   Doctors want to play ‘empire-builder’, roll up practices, and sell to a DSO for what they hope will be a higher EBITDA multiple.  They don’t always grasp how much work this involves.  They’re growing their top line but can’t maintain the new operations they’ve acquired, and as a result, they're working 50% harder to make the same amount of money.  Growth is essential, but prioritizing top-of-the-line over focusing on the bottom line is backwards.

    

   Another example is opening a satellite office, or bringing in an associate if they haven’t maximized operations at their current facility.

    

   If you already have tons of open chair space and growth potential, your fixed costs are already fixed, so a significant percentage of each additional dollar of growth is falling all the way down into profit.  In that case, for every dollar of growth, there is no additional rent expense, or utilities or staff costs incurred (up to a certain extent).  Your profit margin on every dollar of growth in your current facility might be 80%.  Whereas if you open another office, you're adding fixed costs in the form of new rent, utilities, probably additional staffing costs, etc.

    

   The focus on grow, grow, grow the top line is a bad recommendation if you take your eye off of the bottom line.   Maximize efficiency—then grow.

    

8. How common are the stories of orthodontists acquiring and growing practices to $10m+?

    

   Far more often, I see doctors who have tried to acquire more practices and only reach financial ruin. 

    

   There are doctors who could have afforded to retire ten times over and ten years earlier who are ruined because they own a bunch of inefficient practices and have racked up an insurmountable amount of debt in the process.  Even when considering a potentially higher EBITDA multiple, I’ve seen situations where it didn’t cover the debt.  Don’t get me wrong, there are definitely success stories out there.  But only the successful, feel-good stories get shared on podcasts, with friends, and with colleagues.  

    

9. What’s so intuitive to you …yet the hardest to convey to an audience?

    

   You need to plan with a personal financial advisor and start planning as early as possible. 

    

   Regardless of how old you are, irrespective of where you are, you need to determine what you have, what you need, and how the void between those numbers is going to be filled.  Do it yesterday.  Most people, not just doctors, have no idea of their true personal financial status.  It’s surprisingly simple to figure out the answers to those questions.  The answers won’t come from  your accountant, and maybe not from your stockbroker.  Most people woefully are under-saving.  If you’re not going to do the digging on your own, you need a plan to get from where you are to where you need to be, and that starts with finding a trustworthy financial advisor.  

    

10. What’s the most common transition mistake made in this industry?

     

    “I just need to know what my practice is worth.” 

     

    I hear that from buyers and sellers.  But if I tell you “just” that number, what do you really know? 

     

    What a value doesn’t tell you is how much profit falls to the bottom line after all is said and done.  Whether you’re buying or selling 100% of a practice, or just a portion of the practice, there are other terms beyond price that have a material financial impact on buyers and sellers.  If you’re a seller, the worst thing you can do is make a handshake deal not understanding the ramifications of what you promised. If you’re a buyer looking at a 7 figure purchase price, knowing you already have significant student loan debt, the only thing you are going to get is sticker shock. 

     

    But if I told you, the buyer, that even with that intimidating purchase price, after you pay overhead, and debt services, and taxes you’re still going to make 50% to 100% more than you make working as an associate, then suddenly that price doesn’t seem so intimidating!

     

    This is also an issue for sellers who are considering a DSO offer.  The focus tends to be on the proposed purchase price or EBITDA multiple as opposed to focusing on the manner in which that price is conveyed – the deal structure.  How much of that price is cash at close? Is there cash that is held back and subject to future performance? How much is stock?  Stock is definitely the most complex part of these deals as there are many differences in stock from one DSO to another DSO.  Where does the stock reside? What is your ability/limitation in liquidating the stock? Will you have to take a discount on the price if you leave within a certain timeframe? 

     

    Whether selling to a another dentist or to a DSO, the complexion or structure of the deal means so much more than the EBITDA multiple or the purchase price

     

    Bonus – What’s your parting advice for anyone in the industry?

     

    “Get your financial house in order.”

     

    2025 is probably going to be another challenging year for orthodontics. I wouldn’t expect things to turn around overnight. Know your numbers, whether times are good or bad. Many orthodontists don’t even know how much their practice grosses, let alone how much it nets. 

     

    Know your numbers—personally and professionally. 

     

My Take: This interview was my longest interview to date. It took 2+ hours because I kept listening and asking question after question. Can’t thank Jonathan enough for his time and commitment to helping others the industry. A huge resource all. To anyone with practice valuation or practice financial curiosity—I encourage all to shoot him an email below.

To connect with Jonathan, please email him at [email protected]