More dental practices are offering partnership buy-in opportunities to their new doctors these days, as the number of group practices continues to grow. However, automatically offering partnership status is a common transition mistake that can have devastating financial consequences. Here’s the criteria you need to critically evaluate a new doctor before offering partnership.
Avoid a “shotgun marriage”
Only 50% of practice partnerships are successful long-term, about the same success rate as experienced by actual marriages. The success rate drops dramatically for “shotgun business marriages.” A business partnership divorce can be even more costly and emotionally draining than a personal divorce. So, remember this absolute rule: never promise partnership status to a new doctor until you are satisfied that he or she has what it takes to make the partnership work.
Define the deal up front but . . .
We’ve long recommended that you define the potential practice transition deal up front to a potential partner so that all parties are fully informed. This requires a written employment agreement that defines the terms and conditions of the initial associateship period (typically 18 to 24 months).
Moreover, a new doctor should be informed up front if there’s a possibility you’ll offer partnership and the criteria upon which that decision will be based. However, you need to make it clear that an offer of partnership will be extended if and only if the new doctor exhibits the qualities required of a new partner, as outlined here.
4 qualities of a successful partner
In order to be partnership material, here’s what your new doctor must demonstrate.
• Proven clinical productivity—Partners expect their income to increase, not decrease, after buying into practice ownership. For this to happen, the new doctor must demonstrate a proven track record of productivity and excellent prospects for future growth. Thus, excellent clinical skills, a strong work ethic, and a true entrepreneurial spirit will help promote practice growth.
• An excellent relationship with doctors and staff—The potential partner must also get along well with other doctors and the entire staff. Building a successful practice requires the commitment of the whole team, which won’t happen if there’s discord among the staff. The senior doctors must also get along well with the new doctor and share a common treatment philosophy and core personal values. Furthermore, the senior doctors must be comfortable referring patients to the new doctor and be proud to have him or her represent the practice in the community.
• High patient satisfaction—Though the new doctor may have excellent clinical skills, he or she will not be successful in growing the practice without an excellent relationship with patients. Conduct a patient satisfaction survey to determine the new doctor’s ability to communicate and get along well with patients. Also, speak to staff members to determine if patients are referring others to the new doctor and if patients are communicating comfortably with him or her.
• Commitment to managerial and marketing duties—Unless your practice profitability grows, bringing in a partner will result in less income for you, the senior doctor. Although this is to be expected in the short run, the new doctor must be committed to building the practice through marketing to increase new patients, add referral sources, expand the procedure mix, and open or develop other practice locations to stimulate long-term growth. It also requires an equal commitment to practice management duties to ensure that overhead can be controlled and profitability improved. As a general rule, doctors should commit at least eight hours a week to these management duties for the benefit of the practice.
Understanding the qualities necessary for a successful partnership and properly communicating them to the new doctor in advance will dramatically improve your practice’s chances for long-term success. This is critical, since the success of your partnership is required for the practice to grow and for you to successfully transition out of practice and achieve financial security in retirement.
JOHN K. McGILL, JD, MBA, CPA, provides tax and business planning for dentists and specialists. He publishes The McGill Advisory newsletter through John K. McGill & Company Inc., a member of The McGill & Hill Group LLC, your one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit mcgillhillgroup.com.
