What Is a Dental Practice Partnership?
A dental practice partnership traditionally involves two or more dentists sharing ownership, responsibilities, and profits. However, partnerships now extend to collaborations with dental service organizations (DSOs) and other entities, offering diverse deal structures and operational support.
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Professional Partnerships: Dentists share ownership, decisions, and profits equally. This structure thrives on collaboration and shared goals.
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DSO Partnerships: DSOs provide operational support (e.g., HR, billing) and growth opportunities through equity and recapitalization, allowing dentists to focus on patient care.
Understanding Partnership Practices
A partnership practice operates under a formal agreement where dentists share resources and responsibilities. Collaborations with DSOs or private equity-backed groups bring additional management expertise and growth potential.
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Joint Ventures: Practices partner with DSOs or private equity firms, combining external expertise with retained operational control.
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Equity Rolls: Dentists exchange part of their practice for equity in a larger organization, leveraging a broader network for growth.
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Sub-DSO: A practice forms its own DSO, partnering with a larger DSO or private equity group, allowing for brand autonomy while leveraging external support.
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Direct Investment with Private Equity: Private equity firms directly invest in a practice, providing capital and business acumen to drive growth and expansion
Why Do Dental Partnerships Fail?
Despite their benefits, partnerships can falter due to:
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Misaligned Goals: Differences in vision and priorities among partners.
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Poor Financial Management: Unequal contributions and unclear agreements.
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Unrealistic Expectations: High performance targets without sufficient support, particularly in DSO partnerships.
Invisible Dental Service Organizations (IDSOs), which promise minimal interference, may also set unrealistic growth targets. Understanding these dynamics is crucial to preventing failure.
The dental landscape includes various partnership options:
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DSOs (Dental Service Organizations): Centralize operations and boost efficiency, offering financial growth opportunities through equity.
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IDSOs (Invisible DSOs): Claim minimal interference but may demand significant growth without adequate support.
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DPOs (Dental Partnership Organizations): Focus on equity sharing, often operating similarly to DSOs.
Choosing the right partner involves looking beyond branding to assess actual support and alignment with your goals.
Structuring a Partnership Agreement
The cornerstone of a successful partnership is a well-crafted agreement that defines roles, profit-sharing, decision-making, and dispute resolution. Key elements include:
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Clear Roles and Responsibilities: Define clinical and administrative duties.
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Profit and Loss Sharing: Establish how profits will be distributed.
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Exit Strategy: Specify terms for partner exits, valuations, and buyouts.
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Dispute Resolution: Include mechanisms like mediation to avoid costly legal battles.
Financial Planning and Management
Effective financial planning ensures profitability and smooth operations:
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Budgeting: Create and regularly update detailed budgets.
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Cash Flow Management: Monitor liquidity to meet obligations.
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Investment Planning: Allocate funds for growth, such as expanding locations or acquiring new equipment.
Expanding to Multiple Locations
For partnerships with multiple locations, agreements should address:
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Resource Allocation: Ensure efficient management across sites.
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Profit Distribution: Define how revenue is shared.
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New Partners: Establish protocols for onboarding additional stakeholders.
Choosing the Right Partner
Finding the ideal partner goes beyond finances. Consider:
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Professional Background: Look for a solid track record in dental practice management.
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Vision Alignment: Ensure shared goals and values.
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Business Acumen: Seek partners with proven expertise in growing dental practices.
Exiting a Partnership
A well-planned exit strategy minimizes disruption and ensures fairness:
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Timing: Align exits with financial milestones.
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Valuation: A well-documented partnership agreement simplifies the valuation process. It clarifies each partner’s contributions and stake, facilitating an accurate appraisal of the practice. This helps in setting a fair purchase price and deciding on the next steps.
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Options: Once the valuation is determined, partners can choose to sell to an associate, buy out the partnership, or sell to a DSO. Each option has implications, such as potential success rates or managerial responsibilities, which should be considered based on the retiring partner’s and remaining partner’s goals.
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Communication: Clearly inform staff and patients to maintain trust.
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Legal and Financial: Ensure the partnership agreement is updated to address exit terms and comply with legal requirements.
Bottom Line
Dental practice partnerships offer immense benefits but come with complexities. Understanding partnership types, drafting comprehensive agreements, and planning for challenges ensures a successful and sustainable collaboration. Ready to explore partnership opportunities? Contact the experts at Professional Transition Strategies for personalized guidance and support.