The Dentist's Network #82

Thomas L. Snyder, DMD, MBA
Managing Partner
The Snyder Group, LLC
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Increasing Your Income through an Acquisition

No doubt in today’s economy, many have experienced a tough year. However, there is a strategy for you to consider that has been growing in popularity and can be a win/win proposition for all parties. Have you considered purchasing a practice in your area from a doctor who is not yet ready to retire, but is willing to spend the last few years of his or her professional career with you? Perhaps there is a dentist in your vicinity who practices in a “home office” situation or may be faced with a lease expiration and prefers not to renew.

Obviously, this strategy works best if your facility is under-utilized. By developing a facility sharing agreement accompanied by a mandatory buy out for your prospective candidate, you immediately gain better use of your facility as well as create additional income possibilities. In the long term, once the candidate retires, you will have a larger patient base that may prove helpful in recruiting an associate for your own transition plans, not to mention a practice that will command a higher fair market value than it would today.

Here’s an example of how this strategy works. Let’s assume the proposed candidate has a small practice consisting of 400 to 600 patient records. The candidate wants to continue practicing and is not ready to retire for one to two years. In this instance, you form a facility sharing arrangement whereby the candidate retains his/her own business entity, pays you rent as well as perhaps some other usage charges and then at retirement sells you the patient list. In this scenario, we recommend that a formula for a future purchase price be agreed upon using a percentage of the last twelve months of the candidate’s gross collections at the time of sale.

These gross collections should also include any revenue that you or other providers in your practice produced in that twelve month period. Often times an older practitioner refers many procedures to area specialists. So, if you choose, you now have the opportunity to perform some of these services, such as endo and perio, advanced restorative, etc., thus increasing your own clinical production immediately, as well as increasing the future value for the retiring doctor. If you already have an associate, some of these services could be provided by him/her.

In order to track production/revenue referred by the candidate that you or other providers in your practice provide, this revenue must be properly coded. You can create unique doctor and/or hygienist numbers to track this referred production/revenue. This provides a win-win scenario, boosting your income immediately and giving the retiring doctor a bonus on his/her practice’s value, since the revenue generated by your efforts is credited to his/her future value. In fact, it will create an incentive for your candidate to refer procedures to you including hygiene during the time they are practicing in your facility!

For example, if the candidate generated $300,000, and an additional $75,000 was produced by you over the last twelve month period, you would use a revenue number for valuation purposes of $375,000. However, you have benefitted in the short run from increased revenue on those additional services referred to you, and the candidate benefits from their referring patients to you by getting a higher value. Chances are there is still plenty of dentistry remaining in these patient records so when you eventually acquire the practice, this additional investment should reap substantial benefits.

Agreements should be prepared before the candidate moves to your location, so there are no surprises on either party’s behalf. These agreements would include a Facility Sharing Agreement and an Asset Purchase Agreement. Creating this type of a transition plan becomes “a win” for both parties because it:

Lowers your overhead by the candidate reducing your fixed expenses in paying you rent and possibly other usage charges such as computer, staff, etc.
Increases your total practice revenue from those additional services that can be referred to you, which will translate into a higher practice value for you in the future.
Provides your associate, if applicable, an opportunity to create more opportunities to be productive.
Provides a reasonable practice value for a soon to be retiring doctor.
Provides you with a solid patient base to initiate or accelerate your transition plans.

Dr. Thomas L. Snyder is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can be reached directly at 1.800.988.5674.

If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.

Interested in having Dr. Snyder speak to your dental society or study club? Click here.

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Michael Moore, Esq.
Director McKenzie
HR Solutions
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Separating Yourself From A Bad Employee, Part III

We opened this series of articles by explaining how you can reduce the potential for a confrontational and even dangerous termination. The risk reduction starts with you having a solid employment relations policy that every employee receives and understands when they sign on. We also gave one of many possible examples of how a poorly planned termination can result in the employer being hit for false imprisonment, assault, battery and a host of other potential claims. The second in the series began to provide strategies for controlling not only the situation, but your own anxieties over these types of terminations. We continue on here.

Why not record the termination meeting?
In my experience, employees sometimes ask to record the meeting if they suspect it will be a termination session. For reasons I never understood, human resources managers always refuse to allow the recording. This is a real mistake. Think how it will play out in front of a judge and jury that the plaintiff – the fired employee – asked to record the session and was denied, and then the employer tries to contest something that the employee claims happened in that session. The credibility of the employer’s explanation goes to zero.

The best evidence of what occurred in the session is, of course, an audio - or, better yet, video - record. You should strongly consider not waiting for a request from the employee, but decide to document it yourself. You should at least record the session on tape - a microcassette recorder costs only a few bucks. These are the necessary steps:

1. Test the recorder in the office to make sure it picks up the voices clearly from where the participants will be sitting.
2. Ask the employee at the beginning if he or she objects to you recording the session. If the answer is “yes,” simply turn on the recorder at that point, state your name, the date, the location, the name of the employee, that the employee is present and that there has been an objection to recording the meeting, then ask for the employee to confirm and turn off the recorder.
3. Assuming no objection, hit record and identify yourself, everyone present, the date and location, get the employee to affirm that he/she knows the meeting is being recorded and agrees to it, and be sure to state on the record that you will provide a copy of the recording to the employee.
4. When the meeting concludes, confirm on the record that it is over, reaffirm you will supply a copy to the employee, state the time, then turn the recorder off.

Conducting the meeting
Because this is a separation event, hand the employee the termination documents at the beginning. Be straightforward that you have decided to terminate the employee. Offer them the opportunity to read the termination letter in your presence. Do not elaborate on the issues in the letter – you have already done that in writing and in previous discussions. Answer any questions about the issues in the letter by referring back to your policies and the letter. Properly done, the termination letter should say what you need to say.

Next article, we’ll discuss employee threats, entreaties, and finalizing the termination.

Mike Moore is ranked among the best in employment law and has been named one of the top 10 lawyers in Ohio. As Director of McKenzie's HR Solutions, Mike is the creator of the Employment Policy and Handbook, geared to providing dentists who are unsophisticated in the legal arena with a step-by-step policy manual.

Click here to hear Mike present “7 Elements of an Effective Employment Policy.” Email Mike at mike@thedentistsnetwork.net.

Interested in having Mike speak to your dental society or study club? Click here.

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Sally McKenzie, CEO
McKenzie Management
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Pay Raise - They Expect It, But Can You Afford It This Year?

Managing the ever-touchy issue of employee compensation is a challenge for virtually every dental team. Reward some, and you seemingly punish the rest. Reward all, and you appear to value excellence no more than mediocrity. It’s a management minefield for most dentists who struggle with balancing the financial needs of the practice with the financial desires of the staff. How do you navigate this tricky issue? Manage expectations.

It’s imperative that employees understand how their roles fit into the overall success of the practice, and it’s critical they have a clear understanding of the financial health of the practice. But above all else, effectively handling the matter of money with your staff requires that you manage their expectations from the outset. It starts on day one - not six, eight, or twelve months after the employee comes to work for you. Spell out the guidelines on the first day the employee becomes a member of your team. Explain when raises will be discussed and under what circumstances a raise will be given.

I recommend this approach: “Anne, your yearly salary will be reviewed on your one-year anniversary date. At that time, any increase in your salary will be dependent upon your performance and contributions to the practice as well as the financial condition of the business.”

This makes it clear that raises are not given merely because the employee stays with the practice for a certain number of months. Rather, raises are a form of recognition for an employee’s commitment and willingness to learn and grow as a team member. However, in order for the employee to hold up their commitment to the practice, the doctor must hold up his/her commitment to the employees. Meaning, every staff member must be given a specific, results-oriented job description and have regularly scheduled performance reviews.

For example, if Anne is your new dental assistant then her job description should include things like attending beginning of the day meetings, completing case presentations, reinforcing the quality of care delivered, directing the doctor to check hygiene patients, completing post treatment care calls, converting emergency patients to new patients, turning the treatment room around promptly, etc. Anne should also know what quantifiable measurements will be used to gauge her performance. For example, she needs to know that you expect her to achieve an 85% case acceptance, that she is to give a daily report on her post-treatment calls, that she should be converting 75% of emergency patients to comprehensive exams, and that she should be able to keep the cost of dental supplies at no more than 5% of practice collections. In addition, you should be able to see the distal of the cuspid on every bitewing X-ray, you should never have to reach for an instrument on any setup, and the molds Anne pours should be free of defects. When you and Anne both know what is expected you can better assess if Anne is just doing her job or truly making a difference in the practice.

If Anne truly is a key contributor to the team, if she’s working hard and delivering on her job expectations, after a certain amount of time she wants and expects a raise. Understandably, the doctor feels an obligation to reward the employee. But what if the practice cannot afford it? What does the doctor do? Go back and review what I said a few paragraphs back: Enhanced compensation is contingent upon the employee’s performance as well as the financial health of the practice. If you and your team regularly review the numbers in the monthly meetings as I strongly recommend, everyone should be well aware of where practice finances stand.

If your practice follows industry benchmarks as it should, the team realizes that wages should be in the 19- 22% range of gross collections, not including the doctor’s salary or taxes/benefits. If your current monthly collections are $48,325 per month and your existing salaries are $9,353 a $2 hourly raise for Anne from $15 to $17 and working a 36 hr. week will increase existing salaries to $9,665, which is within the 20% industry benchmark. However, if your current monthly collections are $39,000 and existing salaries are $9,353 that puts you at 24% of gross collections and well above the standard. You and your team need to focus on strategies for bringing in more money before the practice can afford to hand out any more.

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 sally@thedentistsnetwork.net or call 1.877.777.6151.

Interested in having Sally speak to your dental society or study club? Click here.

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