How to Avoid an Earn-Out (Even in a Service Business)

Most business owners hit a fork in the road. 

Stay “on the tools” and keep making great money. Or start feathering back your personal involvement so the business can grow beyond you. 

In this episode of Built to Sell Radio, Dr. Michael Filosi walks through how he made that shift in a dental practice, without jeopardizing cash flow. He didn’t rip the band-aid off. He reduced his patient days one day at a time while the practice added clinicians and transitioned patients carefully. Over a few years, his billings went from roughly 43% of revenue to single digits, and he only went to zero once the business was already producing most of his take-home income. 

In this episode, you discover how to 

• Spot the “capped upside” moment when your time becomes the constraint
• Feather back from four days on the tools to three, then two, then zero
• Time each reduction using numbers, not hope
• Transition customers off the owner without breaking trust
• Remove key-person risk by ensuring no one producer dominates revenue
• Keep cash flow steady while you trade personal production for enterprise value 

The result: Filosi sold his practice and collected 100% of his cash at closing, which is almost unheard of in dentistry. 

Show Notes & Links

Connect with Michael on LinkedIn

Definitions

Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.

Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.

Errors and Omissions Insurance (E&O): This is a form of liability insurance that protects companies and their employees against claims of inadequate or negligent actions, particularly in professional advice and services.

Re-Trading: This occurs when a buyer attempts to renegotiate the purchase price of a deal after initially agreeing to one. It is often seen unfavorably as it occurs after due diligence, seemingly exploiting newly discovered information.

About Our Guest

Dr. Michael Filosi is a dentist and the principal clinician at Fullarton Park Dental in Adelaide, where he has helped grow the practice into a modern, multi-surgery facility serving families and individuals across the Eastern suburbs. He earned his Bachelor of Dental Surgery from the University of Adelaide in 2006 and has worked both interstate and in South Australia before joining and expanding the Fullarton practice. Known for combining clinical expertise with a patient-first approach, Dr. Filosi is active in the local community and mentors aspiring dental professionals while continuing to enhance patient care and experience.