Key Points to Consider When Forming a Partnership
By Thomas L. Snyder, DMD, MBA, Director Henry Schein Professional Practice Transitions
There is a growing trend for doctors to form partnerships, as over 40% of dentists are practicing in two-doctor or more relationships. Many doctors, however, still feel that partnerships will not last – but that concern is not necessarily true. Partnership failures are often related to inadequate planning or failure to consider all those key issues that can make or break a successful partnership. Here are a few key points that must be thoroughly discussed and reviewed to increase the probability for a successful partnership.
Historically, many dental partnerships were structured as general partnerships. In this model partners shared compensation equally, regardless of clinical performance. In today’s world, that model does not work. There are numerous ways to share partner income. The most important consideration is for partners to share all or a portion of their income based on their relative clinical production. For example, consider paying each partner a commission based on a percentage of clinical collected production minus lab/implant supply expenses. The balance of available partner compensation, after the production related payment, can be shared based on each partner’s ownership percentage or the relative clinical production percentage of each partner.
Another partner income approach considers the allocation of certain operating expenses to each partner on their personal clinical production ratios and with certain expenses being allocated directly to each partner. The bottom line in compensating partners is that any income sharing formula has to be fair.
Both parties need to critically assess their overall personal financial plan and goals to determine an age for relinquishing their ownership. Many doctors consider the ages between 70 and 75 as a mandatory retirement age. However, in partnerships involving partners in their 30s and 40s, we see a trend of 60 to 65 years of age as a retirement age target.
Establishing Minimum Days
A partner’s health issue may result in a reduction of work days for a lengthy time period. Conversely, based on a partner’s personal financial situation it may create a scenario where a partner is financially comfortable and desires to work less. Too much time away from the practice, however, can have a deleterious effect on the sustaining partner(s), with them feeling overworked and perhaps being taken advantage of. One consideration is to require a minimum number of days and/or hours annually that must be maintained by each partner for them to retain their partnership ownership status. Another alternative to minimum number of days is to establish minimum production goals for each partner to sustain.
One reason for becoming a partner is to enjoy a long term relationship with the other partner(s). If a partner decides to leave prematurely, that individual should not expect to receive full value for their partnership interest. Hence, consider assessing a reduction on that departing partner’s goodwill. For example, if the mandatory retirement age is 65, and if a partner leaves at age 55, the discount on that partner’s goodwill should be significantly higher than if a partner decides to leave at age 60.
Not all partners share management responsibilities equally – in fact, some partners have no interest in managing the practice but merely want to perform only on a clinical level. Oftentimes, the partner who manages the practice is probably spending considerable “non-chair” time dealing with the business aspects of the practice. It is appropriate for that partner to be compensated accordingly. Compensation can be made via paying a fixed monthly amount or payment of a small percentage of practice profit or revenue. This payment should be considered an operating expense of the practice and have no ties to any ownership or production compensation.
Retirement of Partner
In most two-doctor partnerships, this can become a big issue! Should the junior partner be required to buy out the senior partner? If so, there should be a formula written in the partnership agreement that calculates the percentage of goodwill value that a retiring partner is entitled to. If this is a 50/50 partnership and the retiring partner is not generating the same percentage of clinical production, then that departing partner should not be entitled to 50% of the available goodwill in the partnership. Rather, the relative clinical production ratio for that retiring partner is a fair way to calculate their goodwill percentage. For example, if the ratio was 45% for the retiring partner, then 45% of the available goodwill is what should be paid.
In summary, looking at as many options that may occur in your partnership is well worth the effort at the beginning of your relationship.
If you would like additional help, email Dr. Snyder at firstname.lastname@example.org
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How a Dental Consultant Can Help Grow Your Practice
By Sally McKenzie, CEO
Many dentists struggle at one point or another during their career, for a variety of different reasons. If you’re struggling now, maybe it’s because patient retention numbers took a nose dive and your production numbers are suffering, or your overhead costs started spiraling out of control and now you can’t afford to invest in the upgrades and equipment your practice needs.
Whatever the problem is, you don’t have to deal with it alone. An experienced dental consultant can help you overcome any challenges you’re facing so you can grow your practice and your bottom line.
I know admitting you need help can be difficult, but oftentimes it’s the best thing you can do for your practice. Trying to do it alone likely won’t get you anywhere, and you might even end up doing more damage to your practice in the process.
If you’re ready to start making positive changes, an experienced dental consultant can help. Here’s how:
They make your days less stressful. Sure, you love your job, but that doesn’t mean it isn’t stressful at times. And when a practice is struggling, it leads to extra stress and frustration for both you and your team members. The right dental consultant can help relieve a lot of that stress. The consultant’s job is to identify weaknesses, then work with you and your team members to get your practice back on track. You’ll know your practice is in good hands, which will put your mind at ease so you can focus on what you do best: dentistry.
They know exactly what to look for. While it’s clear your practice is struggling, you likely have no idea why. It’s easy to get caught up in the day-to-day routine and overlook the inefficiencies that are keeping you from meeting your goals. Even if you do step back and really take your practice in, chances are you won’t see every problem that plagues you. Consultants, however, are trained to do exactly that. They see problems you and your team members don’t, then they help you determine how to fix them.
They offer support. This is critical when you’re trying to make positive changes in your practice. Consultants are there to not only identify problems and offer you guidance, but to also cheer you on when you make progress. This will help keep you motivated and working toward your goals.
They’ve been here before. Trust me, your practice isn’t the first to deal with low patient retention rates or lackluster production numbers. Dental consultants see these problems all the time and know the best ways to address them.
Let’s say your case acceptance rates are down, for example. There are many reasons patients opt not to go forward with treatment, from not fully understanding the need for the procedure to simply not knowing how they’re going to pay for it. No matter the cause, a consultant can determine exactly what’s going on pretty quickly and then develop a plan that will get case acceptance rates back to where they should be.
They help prepare your team members for change. Over the years, I’ve found many team members are simply resistant to change, which is understandable. Change can be difficult, especially for those employees who have been with you for years. The problem is, when team members aren’t on board with the enhancements you need to make, it can keep you from moving the practice forward. You need everyone to be excited and ready to do their part to achieve success. A consultant can help with that.
How, you ask? By sitting down with staff members and explaining to them why the changes are necessary, and then answering any questions they have. Of course you’ll want to talk with them as well, but having a consultant reinforce the message will certainly help. And the fact that you’ve invested in a consultant shows you’re serious about growing the practice, which will boost confidence as well as team morale.
Asking for help is never easy. Many dentists would rather handle challenges on their own, but unfortunately, this could lead to more problems down the road. Bringing in a dental consultant to identify practice problems and then work with you to develop a plan to address those problems will lead to much greater success – helping your practice finally meet its full potential.
Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development and educational consulting firm. Working on-site with dentists since 1980, McKenzie Management provides knowledge, guidance and personalized solutions that have propelled thousands of general and specialty practices to realize their potential.
Interested in speaking to Sally about your practice concerns? Email her at email@example.com or call 1.877.777.6151.
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