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Growing Pains by Jason Wood, Esq.

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Categories: Practice Management, HR and Accounting; Practice Transitions;
Growing Pains 

How to know when (and why) to hire an associate

by Jason Wood, Esq.

Owning a dental practice is not for the faint of heart. It often feels like the weight of the world rests solely on your shoulders. Patient care, nonclinical duties, management and HR all constantly pull you in different directions. However, the rewards of practice ownership are immense, with a large chasm of wealth differentiating practice owners from career associates. So, when is the right time to bring someone on to share some of the burden with you? When should you, as a practice owner, contemplate hiring an associate?

Before bringing on an associate, every owner should analyze the “why” behind the idea. Is this a lifestyle choice or an economic decision? Lifestyle choices are geared toward sharing the burden of patient care to allow you more freedom and flexibility in your life, whereas economic decisions are based on growth and revenue creation. These are not mutually exclusive ideas, but careful consideration of your short- and long-term plans is essential before bringing on an associate. Otherwise, the relationship carries greater risk, which could cause more stress in your life and leave you with less money in your pocket.

When advising clients on whether they should bring on an associate, I ask the following questions:
  • What is your annual revenue?
  • How many operatories do you have?
  • How many new patients do you receive each month?
  • What are your short- and long-term plans for your practice and a good associate?

Annual revenue
If your annual revenue is not at or approaching $1 million, it is hard to hire and retain an associate, especially the good ones. The reason is simple: There isn’t enough production for the associate to earn enough to adequately support living expenses, loan repayments, etc. In a typical GP office, hygiene should be about 25% of total production, meaning a $1 million practice generates roughly $750,000 in doctor production. This means there is $62,500 in doctor production per month. Dividing this in half leaves an associate producing $31,250 per month. At 30% of collections—a reasonable ballpark compensation formula—the associate would earn just over $9,000 per month. That’s not great. Therefore, anything less than the annual revenue mentioned above significantly impacts your ability to find and retain good doctors. In our experience, practices that hire associates before reaching this revenue benchmark tend to be the least satisfied and experience the most issues as a result.


Operatories
To maximize the efficiencies of multiple providers, we typically recommend a minimum of six operatories when a client is looking to bring on an associate. The reason for this is both providers, along with hygiene, can work simultaneously, lowering overhead costs and increasing office productivity. With the addition of the extra provider, revenue can grow significantly without adding additional days, which would otherwise increase overall overhead. If the practice has fewer than six operatories, the next best option is to expand the number of days the office is open. This approach offers multiple benefits, including expanded availability, which often attracts new patients. Additionally, it allows the owner to mentor the associate one to two days a week while primarily focusing on nonclinical aspects of the dental practice. Although this increases staff overhead, the additional revenue generated from the extra days should significantly outweigh the added cost.


New patients
Before deciding on an additional provider, you need to fully understand the health of your practice. For example, your revenue may be increasing, but that could be because of the age demographics of your patient base shifting toward more crowns, bridges, implants and veneers as they age. This means your per-patient value may have increased without actual growth in new patients. We suggest examining how far out your hygiene department is booked, along with the number of new patients you consistently schedule each month over a three- to six-month period. These two metrics should help determine if your practice is truly growing relative to your historical active patient metrics. They will also help identify whether you are unwittingly losing patients or failing to convert new patients into long-term patients—especially if your new patient numbers are increasing but revenue is not. We like to see at least 20 to 25 new patients per month when evaluating whether to bring on an additional provider.


What’s the plan?
An extremely important but often overlooked issue to address before bringing on an associate is understanding your short- and long-term plans for your practice and how the associate fits into them. Do you have a goal of partnering with an associate? Do you plan to eventually retire and sell to this associate? Is your goal to sell to a third party in the future with or without the associate being a partner?

All of these questions—and more—should be asked by your advisors and, more importantly, answered by you before hiring an associate. Miscommunication and a lack of disclosure can quickly ruin a professional relationship, and no one wants to be brought in under false pretenses. If candidates are bold enough to ask, be honest. You do not need to overshare, but clearly communicating your intent will help establish a strong foundation for a productive working relationship. Proper planning can also save significant money over the years by reducing false starts and broken plans while providing more continuity and stability in developing your short- and long-term plans.


Lifestyle decisions
Even if your decision is a lifestyle choice, I still want your revenue at or above $900,000 a year. The reason for this rests primarily on cash flow and the ability to keep the associate busy. The more doctor production you can provide an associate, the more likely they are to stay long term, work hard to maintain goodwill and grow with the practice. All of these factors allow you to take more days off while maintaining a steady income stream and the lifestyle you want. In short, the adage “work hard, play hard” is crucial when building a lifestyle practice because you must grow your practice enough to establish a strong infrastructure. This enables you to taper off your involvement slightly while ensuring the practice continues to flourish. Keep in mind, however, that your income will be substantially lower, even if you maintain or grow revenue, because of the additional overhead of another provider.

If your revenue is below the previously referenced threshold, I strongly recommend working hard for an additional year and then selling your practice rather than bringing on an associate. In lower-income practices, there is a high risk that both parties leave the relationship frustrated—the associate because of a lack of income and the owner feeling their practice is worse off than before. This can significantly affect an owner’s ability to achieve the lifestyle balance they were searching for in the first place.

It’s easy to say, “I need an associate.” The hard part is creating a plan that allows you to bring in an additional provider in a way that strengthens your practice and supports the economics and lifestyle you are searching for. Spend the time to know yourself, understand what you are looking for and to know where you want to go, and you can enjoy years of benefits in your practice.

Author Bio
Jason Wood Jason Wood, Esq., is a partner in the law firm of Wood & Delgado, and has been with the firm since 2004. He is a graduate of San Diego State University and the University of San Diego School of Law. Wood’s primary emphasis is on business transactions for dentists and doctors: leases, purchase agreements, partnership agreements, shareholders agreements, corporations, associate agreements and other business-related legal needs.
Wood is a member of Dentaltown’s editorial advisory board and a frequent contributor to Dentaltown’s online message board forums. Before joining Wood & Delgado, he worked in Washington, D.C., in connection with presidential and U.S. Congressional campaigns and for the U.S. House of Representatives, drafting legislation for various House committees.
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