Most dental school graduates today are burdened with substantial debt,
so they begin practice as associates. While some enter General Practice
Residencies (GPRs) or the Armed Services until they complete their obligations, the outcome is the same — they enter private practice. As
associates, they have the opportunity to improve their clinical skills,
increase speed and proficiency, and learn dental business management.In
addition, most associates hope the position will lead to ownership of
the practice. However, many find themselves building the value of their
host doctor’s practice, only to be forced to leave the practice and
relocate. Relocation is compulsory; the result of their non-compete
agreement when the promised buy-in/buy-out didn’t occur.Understanding
the reasons for failure and avoiding situations that lead to it is the
best route to achieve the desired goals of both parties. This article
examines the most common reasons many associateships fail to result in
ownership or partnership, and provides a checklist designed to improve
the chances of a successful outcome.
Lack of predetermined purchase price. The number-one reason that the
promised buy-in/buy-out does not occur after a one- to three-year time
frame is that the parties did not agree on the purchase price before
the associate was hired. Therefore the two parties can be at odds with
vastly different ideas of practice valuation and appropriate buy-in
The purchase price needs to be determined and agreed upon prior
to commencement of employment. If not, the senior doctor expects the
practice will be valued at its current value, but the recent graduate
expects to receive credit for the increased production and profit
provided during his or her employment. Subsequently, the associate feels
he is being asked to pay for his own sweat equity that increased the
value of the practice.
However, if the purchase price was established prior to commencement
of employment, three out of four associateships lead to the intended
equity position. Conversely, if the purchase price has not been
predetermined, nine out of 10 associateships lead to termination without
achieving the ownership intended or promised.
Lack of written details. The second most common problem is that the
details of the buy-in have not been agreed to in writing prior to or
immediately upon employment. A common but fatal mistake is to say, “If
we like each other, we’ll work out the details later.” Do not
procrastinate on the details of one of the most important transactions
of your career.
The more items discussed and agreed to in writing beforehand, the
better the chance of a successful equity ownership occurring as planned.
The written instruments consist of two specific documents:
- Operations Agreement, which may include an Employment Agreement if
applicable. These documents detail the responsibilities of each party
and spells out all expectations of the relationship, which, for example,
may include the associate’s responsibility to meet certain production
criteria for specified time intervals. This document also applies to
associates in a large group or multi-practice model design where the
associate is an employee or independent contractor.
- Letter of Intent, which details the proposed equity acquisition. The
Letter of Intent includes the proposed date of sale, the proposed sale
price, and provisions for special circumstances. For example, how to
proceed in the event of irreconcilable differences and if there be an
obligation to buy the remaining portion of the practice, what will
happen if the practice owner also owns the building, i.e., will it be a
requirement or an option for the new doctor to purchase a position in
the building, how will income be shared, how will patients be
distributed, and how additional partners would be handled. It will
include a statement indicating that while the Letter of Intent is not
binding on the parties, it does represent their agreement to the
anticipated details of the proposed sale.
Insufficient patient base. The third most common reason an
associateship fails is an insufficient number of active patients.
Typically, 2,000-2,500 active patients are required for each
practitioner, and a new-patient flow minimum of 35-50 per month. If the
senior doctor does not intend to cut back on his or her clinical hours,
then the conversion from a one-doctor to a two-doctor practice requires
4,000 to 5,000 active patients and a monthly new-patient flow of 65 or
more. Attempting to “get by” on fewer is a recipe for failure.
The method of counting patients critical. Many senior doctors count
their active patients by the number of patient charts in the database.
However, if the charts have not been purged within the last two years,
the count will be highly inaccurate. Even if charts have been purged
recently, the best way to estimate the number of active patients is to
use the hygiene recall record.
Take the number of available hygiene days per week multiplied by the
average number of patients seen per day multiplied by 25 weeks. The
product is the number of patients that can be seen in a six-month period
(assuming that most patients are on a six-month recall). That number is
then multiplied by 1.5, which yields an accurate estimate of the total
number of active patients.
If the patient base or new-patient flow is insufficient, after about
six months the senior doctor realizes that all expenses relating to the
new doctor are coming directly out of his or her bottom line. The
practice begins to experience severe financial pressure, and the
Therefore, if the patient base is insufficient, then the new-patient
flow is even more important. However, this problem may not be as
critical if the senior doctor —
- Intends to retire and turn over total ownership of the practice within 24 months
- Cuts back on clinical hours shortly after hiring the associate
Many times the senior doctor views an associate as the answer for
increasing practice production, but adding a clinician to a practice
with insufficient new-patient flow results in two doctors competing for
the same insufficient patient base. This competition results in
Clinical incompatibility. The fourth reason associateships end prior
to ownership transfer is incompatibility of clinical skills or practice
philosophies. For example, a practice that consists of amalgams,
extractions, and dentures will not be compatible with a young dentist
who desires a reconstructive and cosmetic practice.
While on the surface different skill levels and philosophies would be
desirable, in reality the patient base in that type of practice does
not lend itself to the type of dentistry desired by the younger
practitioner. Therefore, sufficient clinical and philosophical
compatibility between senior and junior practitioners is essential to a
Unilateral changes in the transition plan. While closely related to
Reason Two, the fifth reason for an unsuccessful transfer is 1) failure
to identify when the buy-in or buy-out is to occur, and 2) failure to
execute it within the agreed-upon time frame.
For example, the Letter of Intent may have stated that the buy-in was
to occur in one to two years, however certain behaviors and signs
during the employment relationship might indicate that the senior doctor
is having difficulty honoring the intended buyout. Or, the associate
does not feel ready or comfortable consummating the transaction within
the original time frame. If either party delays execution of the
agreement for any reason, the transaction may not occur because the
party burdened by the delay loses patience and trust for the party
responsible for the delay. In the event of extenuating circumstances,
both parties must sort out the problem and be willing to make an
equitable settlement or the result will be failure.
Restricted access to patients. The sixth reason for an unsuccessful
transition relates to insufficient access to the patient base by the
associate. Restricted access can take several forms. For example, if the
senior doctor never intended to turn over existing patients, but rather
give the associate new patients only or patients obtained solely by the
associate’s efforts, the productive capability of the associate will be
Therefore, it is critically important for the associate to buy an
“equal access” to the existing and new-patient base. Dental equipment
can be purchased over night and office space set up in a matter of
weeks, however it takes years to develop a patient base.
The patient base comprises the goodwill value of the practice.
Goodwill value typically constitutes 70 to 80 percent of the value of a
practice. If the senior doctor fails to recognize the need to turn over
existing patients to the associate, then the associate will be
frustrated in his or her efforts to produce dentistry, earn a salary,
and improve skills.
While it is normal for the senior doctor to be concerned about
turning over patients —with whom he or she has carefully developed
trusting relationships — to an unknown and untried new graduate, patient
transfer must occur if the associate relationship is to ever develop
into transfer of practice ownership.
Unfortunately, senior doctors frequently instruct their staff to
steer patients away from the new doctor. A similar situation occurs when
the new doctor diagnoses dentistry of a highly profitable nature, such
as bridgework or crowns, only to find that it is scheduled with the
senior doctor. Even worse are instances where the profitable case was
originally scheduled with the new doctor, only to be switched to the
senior doctor’s schedule!
The best method of introducing a new doctor to the practice is
through the hygiene program. At the end of every hygiene appointment,
the hygienist informs each patient: “Dr. Senior has requested that Dr.
New see as many patients as possible to familiarize you with our new
doctor.” The recall examination is an effective and non-threatening
method of introduction.
Upon entering the examination room, the new doctor repeats the same
story: “Mrs. Smith, Dr. Senior has requested that I check as many of the
hygiene patients as possible so that you are familiar with me and I
with you. This way, in the event that I am the doctor on call and you
should have an emergency, you will not hesitate to call me to obtain the
needed relief. After all, we will already be familiar with each other.”
This method of introduction has proven to be highly successful.
If the new doctor has diagnosed needed dentistry, the scheduling
staff member gives the patient a choice of an appointment with either
doctor — with no bias. The choice of doctor is left entirely to the
patient, not the doctors or staff. Historically, 50% of patients will
choose an appointment with the next available doctor or the appointment
time most convenient for the patient, regardless of who the doctor will
For the other 50% of patients seen by Dr. New in the hygiene room,
approximately 25% state that they really liked the new doctor and they’d
like to be treated by Dr. New. The other 25% state that Dr. New was
really nice but they want to see Dr. Senior for treatment. This choice
is noted in their patient file, so the determination is already made as
to which doctor the patient prefers during the introductory period.
After a few months of seeing as many recall patients as possible, the
new doctor’s schedule will begin to fill quickly. Eventually it will
reach a point when the senior doctor notices that his or her schedule is
slowing down. At that point, the doctors will begin to share recall
Inability to disconnect. Reason Seven is related to Reason Six, but
is a separate and distinct problem. It is the senior doctor’s
unwillingness or inability to “let go” and turn treatment
responsibilities over to the new doctor. Senior doctors facing this
situation may have a number of explanations for feeling that way,
therefore a careful and totally honest self-examination must be made to
determine if they are indeed ready and willing to accept total release
of their practice.
In the case of a senior doctor close to retirement, this may be an
emotionally taxing decision. Until the senior doctor has identified
pursuits after retirement in which he or she has a greater interest than
the practice of dentistry, the senior doctor will be unable to turn
over practice responsibilities to another doctor. Many doctors feel that
their only interest in life is their dental practice. For such doctors,
retirement is especially difficult.
Therefore it is wise for a new doctor considering an associateship to
spend some time investigating the senior doctor’s outside interests and
activities. Is the senior doctor a hunter, traveler, or golfer? Does
the senior doctor indicate having trouble spending enough time at the
office because of outside activities? Or has the doctor’s spouse
expressed a desire to have more time for activities they would like to
pursue? These can be viewed as good signs that indicate the senior
doctor will have no problem “letting go.”
Conversely, if the senior doctor is proud of the number of hours
spent “living” at the office and/or has no other interests in life, it
should raise serious concerns for the new doctor. It means that the
senior doctor is not ready to let go.
Incompatible business philosophies. Reason Eight for transition
failure centers on different business and/or practice philosophies.
Unfortunately, a significant part of this problem often deals with
integrity issues. It is very important for the new doctor to ascertain
the senior doctor’s attitudes and philosophies of business before
entering any transition agreement.
For example, a senior doctor who is willing to share the practice
numbers, profit and loss statements, and tax returns generally indicates
openness and honesty. Such a doctor has nothing to hide and is proud of
his or her accomplishments. But, a doctor who is unwilling to share
numbers, unwilling to share personal financial information, and who
appears distrustful will probably remain that way in the future. There
is a major difference between having concern for privacy and having
something to hide. The cues for determining the difference become
apparent during the first meeting.
An important question to ask doctors who have been in practice more
than 20 years is the status of their retirement plans. Do they have a
well-funded pension/profit-sharing plan, or are they still going
day-to-day, week-to-week and month-to-month financially? If the senior
doctor is having financial stress after 20 years in practice and if the
intended partnership is more than three to five years, then the
partnership should probably not occur. It would be losing proposition
for both parties.
But if the doctor has a well-funded pension/profit sharing plan and
is proud of the practice’s financial accomplishments, it indicates a
strong probability that the practice will be financially strong enough
to launch the new doctor into a similar state within a reasonable time
Personality conflicts. Unfortunately, this is a frequent reason for
failed buy-ins or buy-outs. While all other areas may be compatible and
working smoothly, if the two doctors have conflicting personalities,
there will be immediate stress and friction within the practice.
Personality conflicts between doctors quickly spill over into the staff,
and patients can readily sense the hostility. Any attempt to hide it is
futile, so a thorough assessment of both personalities is essential
before considering any transition agreement.
A variety of effective personality tests and assessments have been
developed over the years, but the use of a few commonsense rules can
easily determine a potential for conflict. Obviously, two short-tempered
individuals will not get along. And two quiet, introverted
personalities probably will not mesh. An outgoing leader will usually
get along well with a quiet follower. A trusting person will not get
along with a distrustful person.
Stay alert for personality conflicts during the initial interview. If
significant personality concerns arise and the doctors are planning a
partnership expected to exceed three to five years, then these warning
signs should be carefully evaluated. If a long-term relationship is
intended, it may be prudent to seek professional personality
assessments. If the assessment reveals the personality differences to be
unmanageable, then it is best to abandon the plan and part amicably.
Delegating control to outsiders. The final reason that associateships
fail to lead to buy-ins or buy-outs has nothing to do with the doctors
or the practice. There have been countless situations where the doctors
got along wonderfully, but they fail to have a congruent advisory team
that works efficiently in the doctors’ best interests for optimum
transition results. A strong, congruent advisory team will consist of
top industry experts: practice strategist (consultant and broker),
dental CPA, CFP, attorney, and financial institution (banker). The ideal
advisory team not only understands practice design, but also
contributes value-added direction and advice collectively to get it done and benefit both parties.
Nevertheless, it is extremely important that both doctors realize the
boundaries that must be set relative to their attorneys’ involvement in
finalizing the buy-in and buy-out arrangements. Your attorney and other
advisors are not your decision makers, you are! You will have
completed the negotiations relevant to the proposed contractual
transition at the outset of your relationship, with all details spelled
out in your Letter of Intent and Operations Agreement, which includes an
Employment Agreement if applicable. Your individual attorneys are hired
to ensure that the i’s are dotted and t’s are crossed in a proper legal
document. They are not being hired to “renegotiate” the transaction. If
they are allowed to do so, two unfortunate and unnecessary things can
happen: The longer they argue with each other, the higher your legal
bill, and the less chance that the transaction will consummate into a
change of ownership.
Without appearing to beat up the legal profession, we must realize
that attorneys are adversarial by nature and training. They have been
taught to fight hard to get the best deal for their client. But if the
attorneys’ personalities and styles are allowed to spill over into the
doctors’ relationship, the relationship will probably end short of the
intended and desired result.
Usually, indications of potential attorney problems show up at the
beginning of the relationship. For example, problems that occur while
producing the Employment Agreement, Operations Agreement, and Letter of
Intent will be a pretty clear indication that significant problems can
be anticipated later in the process, for example, at the conclusion of
the employment period when an option may be executed and the preparation
of Partnership Agreements begins. So beware of the potential pitfalls
throughout the entire process, which includes overly adversarial
Therefore, I recommend an attorney with a focus on the dental
industry as much as I recommend a dental CPA. Having these dental
business experts in your camp will help to influence and execute a
timely, smooth, and mutually beneficial closing.
Sometimes it is desirable for the attorneys of either party to make a
change to one or more details in the proposed transaction agreements.
Ensure that any proposed changes are submitted in writing to their own
client (the doctor) within a reasonable time to keep the transition
moving toward closing. The attorneys are instructed not to contact or
discuss the agreements or any proposed changes with the other party’s
attorney, but to only direct their comments to their specific clients.
However, if one attorney is more well versed in dental industry
transitions and if all parties give consent, then the attorney may
facilitate a group call to minimize delays and keep things moving
forward. This method can significantly reduce the legal fees incurred.
The most successful transitions involve a neutral third-party
mediator such as a practice strategist/broker (in my experience, this
person has been me) who provides suggestions based on the realities of
dental business operations. The practice strategist —
- Outlines specific needs to be met and immediate actions to take to
ensure smooth and trouble-free forward movement from day one of
employment or ownership
- Understands management and transitions because they have worked with
many attorneys and have boilerplate templates of what the transactions,
logistics, and transition outcome should be
- Can create a professional culture to “make it happen” with existing
team members and create a logical, integrated framework to jumpstart
production from day one.
- Provide a neutral outline of operational agreements for the team to
be successful as a new culture that provides dental services with
There are other potential areas for conflict, but they are considered
relatively minor and most of them can be dealt with through open
discussions between the parties at the beginning of the relationship.
The following questions will help reveal some of these minor issues.
While they generally do not result in major breakdowns in the
relationship, they are areas that should be considered and discussed.
- Does the senior doctor actively pursue continuing education for
himself/herself? Will he/she encourage your ongoing development though
paid time off and partial or full reimbursement for continuing education
- Are they willing to share management duties such as staff matters, financial information and financial duties?
- What is their attitude about technology advances and implementation,
and what is their commitment toward acquiring new technology? Moreover,
is the existing dental equipment in good repair, or is it unreliable
and due for replacement?
- What is their attitude toward modern periodontal procedures? Do they
have one or more hygienists, or is this the reason they are hiring you?
- Have they had one or more prior associates? How and why did those
relationships end? Has a relationship recently ended with the associate
establishing a nearby practice?
- Does the support staff appear to be in harmony or chaos, competent
or incompetent, supportive in furthering the doctor’s goals, or do they
appear to be disruptive?
- How long has the staff been employed with the doctor? Has frequent
staff turnover been related to pregnancies or staff relocation, or could
it have been due to problems with the senior doctor? (Frequent staff
turnover is an area of concern.)
While this article has been aimed primarily at a solo practice that
evolves to a two-doctor practice, it can also apply to other scenarios —
- Long-term partnerships, which are defined as five or more years
- A group practice that is adding more associates
- One- to two-year associateships that ends with the senior doctor’s retirement
- Three- to five-year partnerships that end with the new doctor purchasing the senior doctor’s remaining equity.
- The senior doctor continues as the new doctor’s associate on a
part-time basis. This arrangement inspires patient trust and confidence
in the new doctor.
Other scenarios are possible, but ideally, the seller continues to be
active in the practice for at least three (3) years for a successful
patient transfer in today’s market.
In ALL instances, the following questions should be addressed:
- At the beginning of the relationship, is the senior doctor willing
to establish the purchase price with clarity and be proactive in
obtaining maximum “good will” transfer from one owner to another?
- Will the Employment Agreement and Letter of Intent be drafted and
agreed to either before employment or within 30 days after the beginning
- Is there sufficient patient base, treatment chairs, hours of
practice, and adequate new-patient flow to support both doctors as well
as grow the practice for sustainable short-term and long-term
- Will there be any problems with clinical skill compatibility and, if
so, will the senior dentist be willing to mentor the associate for
- Are both parties firmly committed to the buy-in/buy-out timetable?
- Is the senior doctor committed to giving the new associate equal access to the patient base through the preventive care model?
- Will the senior doctor be able to “let go?”
- Are the doctors’ business and practice philosophies and ethics compatible?
- Does the potential for personality conflicts exist, especially if there will be a long-term relationship?
- Do the doctors understand the role of their attorneys and other advisors in consummating the buy-in/buyout?
In the real world, nothing can 100% guarantee a successful outcome.
However, by identifying potential pitfalls at the beginning of the
relationship and staying alert for potential problems throughout the
process, one can greatly improve the chances of success. As an
introduction to the proposed relationship it is strongly advised to
share this article with the prospective employer or partner as a focus
for future discussions.
Rhonda Mullins, CEO, RHO Global Inc and Dentrepreneur Solutions, LLC
Ready to Improve Your Chances of Success? Contact Rhonda Today! Email | 404.445.7730