1. Practice Negotiations and Contracts: Financial Decisions for Future Success Charles Loretto

2. Disclosure Cain, Watters and Associates P.L.L.C. is an Investment Advisor registered with the Securities and Exchange Commission. No client or prospective client should assume that any information presented or made available during this presentation is a receipt of, or a substitute for, personalized financial planning consulting advice. Financial planning consulting advice can only be rendered after the following conditions are met: 1. Delivery of our form ADV Part 2A to you; 2. Execution of an Investment Advisory and/or Financial Planning Engagement Letter between us. For additional disclosure, please refer to the Cain Watters & Associates P.L.L.C. FORM ADV Part 2A. You may obtain a copy by contacting Cain Watters & Associates P.L.L.C. at 972-233-3323 ext. 6015, or send a written request to Gary V. Moore, Chief Compliance Officer.

3. Loretto Kids

4. Why am I here? Build a relationship with you Develop trust with you so that you will eventually let us review any business deal you are considering Motivate you to own a practice sooner than later Educate you on important life decisions that are in front of you

5. Loretto Keys to Success Know somebody Have an unique skill set Have an outgoing personality Toast masters, Dale Carnegie courses Work Hard Be Nice

6. Do You Have a Plan? Most dentists think they have a plan… Are you protected with adequate coverage? Life Changes Have you set retirement goals? Timeline Future Income Savings Goals Investment Returns Have you set business goals? Buying an Existing Practice Becoming a Partner Starting a New Practice

7. Ideal One Doctor Practice Bringing in an Associate You LOVE the established doctor Gross Production$1,000,000 Overhead55% New Patients 40 monthly Partnership 2 year period Guaranteed Salary$90,000 Detailed Plan of Attack

8. Marketing Plan Marquee Business Plan Business Cards Open House Announcement to the Community Direct Mail Campaign Introduced as Partner on Day 1

9. Space 5 to 7 Chairs Over 2000 square feet of space is ideal New consult room

10. Why Are We in a Sellers Market? The S&P 500 as of January 3 rd, 2000 was 1455 and the quarter end as of September 30 th, 2012 was 1441. No stock market growth for a very long time. Assuming the selling doctor is 60, has $1MM saved, plans to sell the dental practice and building for a total of another $1MM, pay taxes and be left with $1.75MM of liquid assets. Now the doctor needs to get a yield on his/her money. Current CDs are yielding between 0-1% or in this example $17,500. All news is negative, so selling a business that one built and managed over 35 years, living off of ones money is a scary thought.

11. Walk-Away Practice Considerations What does the practice gross What does the practice net Can you do the dentistry How much would you net after debt-service Can you live on that income Is the established doctor staying on and for how long Is the non-compete a greater distance than the furthest active patient

12. What amount of production does the established doctor need to produce that you cannot Is the employment agreement for the established doctor one year or less What is the asset allocation of the sale(60% Goodwill and 40% FFE) The greater the allocation to Furniture, Fixture and Equipment for the buyer the better for tax purposes Get a second opinion before you buy the corporation Consider shutting down the pension plan in the office before becoming the owner Walk-Away Practice Considerations

13. P ractice Scenario Walk-Away Sale Example 1: Buyer has been in the practice for 2 years Practice is outdated and needs new equipment Established doctor is willing to stay on in the practice as an associate Buyer is producing $60,000 doctor production in 4 days Practice was doing 800k two years ago, now doing 1.2M Price was set at 600k prior to associate joining the practice Gross Revenue$1,200,000 Number of Ops6 Net Revenues$650,000 Price$600,000

14. Practice Scenario Example 2: Resident is completing program this year The practice is in California Seller presents first option to buyer, but the buyer is not happy with the starting pay because he has 450K in dental school debt and has 2 kids Collections $1,700,00 Overhead is 55% or $765,000 Valuation in 2008 1.1M on 1.4M collections, overhead was same at 55%

15. Example 2 Continued: Scenario 2A: Offer: 35% of collections for any new starts that the candidate brings to practice Years 1-4 - Associate agreement working for 3 days/week Year 5 – Buy-in half of the practice Year 7 – Buy-in the other half of the practice Scenario 2B: $700 per day for 2 days a week $1,300 per day for 2 days a week at a corporate job 50% buy-in at 18 months 50% buy-in at 36 months

16. Example 2 Continued: Scenario A: Year:Salary: 1? 2 ? 3? 4? 5 – Buy 50% $382,000 6 – Buy 50% $382,000 7$765,000 $1,530,000 Scenario B: Year:Salary: 1$70,000 2 Salary$35,000 Partnership$191,000 $226,000 3$382,000 4$765,000 5 $765,000 6$765,000 7$765,000 $3,737,000

17. Proposed Sale-Example 3A: Seller is proposing a stock sale Buyer would work for 2 years as an associate Buy-in starts at year 3 and is complete at year 10 Salary for doctors is $175,000 or 30% of collections -Gross 1.6 million -Net $650,000 -Price Valued at year 3 & revalued at year 10 * Higher price assuming that the practice grew Year: 1. Associate Salary8. 50% 2. Associate Salary9. 3. 5%10. 100% 4. 5% 5. 5% 25% 6. 5% 7. 5%

18. Agreed-Upon Sale-Example 3B: Seller agreed to an asset sale Purchasing the practice as an asset sale vs. a stock sale will save the buyer over $100,000 Buyer would still work for 2 years as an associate Buy-In Year 3 – 25% Year 5 – 50% Year 7 – 100% -Gross 1.6 million -Net $650,000 -Price Valued at 18 months & fixed for life

19. Estimated Cash for the Buyer Example 3C: Before: Year:Profit Pool: 1.$175,000 2.$175,000 3.$175,000$15,000 4.$175,000$30,000 5.$175,000$45,000 6.$175,000$60,000 7.$175,000$75,000 8.$175,000$150,000 9.$175,000$150,000 10.$175,000 $300,000 $1,750,000$825,000 $2,575,000 After: Year: Profit Pool: 1.$175,000 2.$175,000 3.$175,000$75,000 4.$175,000$75,000 5.$175,000$150,000 6.$175,000$150,000 7.$175,000$300,000 8.$350,000$300,000 9.$350,000$300,000 10.$350,000$300,000 $2,275, 000$1,650,000 $3,925,000

20. Example 4: Associate is from the area No valuation of the practice has been completed Associate wants seller to stay in the practice and help Seller wants to hold onto the building Gross Revenue in 2011$600K Net Revenue in 2011$240K Valuation is 70% of Collections $430K Net After Debt Service$180K Building Valued $300K Proposed 10-Year Lease$3,700 per month Estimated Financing Building$2,600 per month (w/ ins. & taxes)

21. Senior Doc Stays on as Employee Have a separate short-term employment agreement Non-compete issues with radius and at least 5 years Know exactly what seller needs to net for their personal financial planning needs Figure out the most you can produce then subtract from total doctor production and use this a base for the established doctor.

22. Please Consider the Building: Purchase of Dental Building –20-30 year financing –A bank will lend you the money on the building every time when it makes sense to the bank

23. Critical Decisions You Must Get Right! Setting up your corporation correctly Structuring your loan correctly Are you getting the best deal. Do you understand all terms and options of the loan, application fees, is this bank easy to work with after they close, what percent of their business is dentistry, all banks are not the same Asset allocation on the practice Stock vs. Asset sale—difference in cash-flow could be over $100,000 Who is selling you what insurance? Agents make commission so please know what and why you are getting the policy. Shutting down the pension plan Rehiring all the new employees Starting a new pension plan Placing your spouse on the payroll if appropriate, placing children on the payroll if appropriate

24. Critical Decisions You Must Get Right Continued! Setting up your corporate salary is huge, this ties to your payroll taxes and your pension plan How much of the working capital do you use to pay bills or reinvest back into the business Setting up your payroll correctly Understanding how to do your accounting. It is not as simple as it seems. When you manage a million dollar business, you don’t just lump all supply bills into one category and pay it. You don’t just put all employees in one column and pay their salaries. Understanding the break-even in your practice and setting goals for you personally and your team

25. When and whom to hire as a consultant. Timing and cash-flow is critical here Purchasing the building. Once you are committed to buying the practice the building needs to be considered as well. Banks will lend here too, if the deal makes sense. Having a financial plan at home. Understand that if you are 30, married, 2 kids, business debt of 600k, lease obligations of 400k, dental school debt of 250k, new home debt of 300k, we are now in 1.5MM of debt. You need a plan!! You and your spouse!! You must fully understand your finances because 1.5MM of debt is emotional. Critical Decisions You Must Get Right Continued!

26. You need to pick the right place to live and practice. You also need to make a good financial decision when you are 250k+ in dental school debt. You must understand that cash is king. Saving money can bail you out of problems. Paying down debt and having no money will leave you with little options. Managing good debt is key here. Consider hiring specialist to surround you personally and professionally. Do you want a heart surgeon that has never performed heart surgery working on your family member or do you want someone that has performed thousands of surgeries. Note to dentist…Don’t perform your own financial surgery.

27. THANK YOU! Cain, Watters & Associates New Client Services-Charles Loretto charles@cainwatters.com www.cainwatters.com info@cainwatters.com 972-233-3323 National Dental Placements President-Charles Loretto www.nationaldentalplacements.com Office 972-239-0971