by Earl M. Douglas, DDS, MBA
The emergence of women in dentistry has been a slow but steady phenomenon that has challenged many of us to examine our preconceptions and stereotypes of how women practice. Besides the many influences women are having on the clinical side of the profession, they also are impacting the management and transitioning of practices.
Recently, Gretchen Lovelace, a transition-consultant colleague in Louisiana, structured an innovative and effective transition approach for two female dentists. The women wanted to work together in a practice structure in which each would work three to four days per week. The practice they were looking at purchasing grossed in the neighborhood of $1 million per year. The dentists decided to purchase the practice ... and this is where this particular transition became creative.
The seller’s practice was divided into two separate and distinct parts. A system was created for dividing the existing patients between the purchasers and allocating new patients to each purchaser. Equipment was divided between the parties, and only where division was not practical — i.e., items such as the compressor, vacuum, panoramic X-ray, etc. — was there any joint ownership.
Each purchaser formed an individual LLC (limited liability company). Then, an LLP (limited liability partnership) was formed with the individual LLCs as members. The LLP functions as an umbrella for the LLCs.
An office-sharing agreement was created between the individual LLCs. Provisions of the agreement called for each LLC to pay its individual expenses and items such as supply costs and laboratory expenses. Other categories such as general supplies, office rent, and utilities would be paid directly by the LLP.
The operating agreement for this office-sharing plan is very comprehensive. It is designed to anticipate any and all situations which may arise, but with the office-sharing concept, the issues are typically minimal. There are, however, some important distinctions that should be drawn from this example.
First, the practice presented to these two women dentists was larger than either one of them wanted to purchase individually. This made it possible for both dentists to have an adequate-sized practice to allow them to earn an above- average income. Too many times, two dentists who wish to go into practice together forget that the practice needs to be double the size that they might be considering.
The other important distinction — and by far the most important one — is that the parties did not go into a partnership, but created two individual practices from the purchased practice. This difference makes the largest single impact on the continuing success of this joint venture of any factor involved. Not being joined at the hip as in a conventional partnership provides both parties with room to maneuver and operate their individual practices as they choose.
There is no constant arguing about whether to start a pension plan, include health insurance, buy new equipment, hire or fire certain employees, etc. Each party is free to make her own business decisions, and those decisions do not affect the other party.
Secondly, an individual and independent practice is more marketable and more valuable than a 50 percent undivided interest in a single practice. A 50 percent undivided interest in a practice, which is an intangible, is much less attractive and marketable compared to total ownership of tangible assets and total control by a seller. The value that can be received from selling an individual tangible practice is much more than what can be realized from the sale of an undivided interest in a practice.
Of all of the pitfalls of forming a 50-50 partnership, the most dangerous is when neither party has any control. Think about it — one 50 percent interest votes for something and the other 50 percent interest votes against it. There is continual deadlock on every issue, and neither party has control. Some suggest a 51 percent to 49 percent partnership. While this gives control to the 51 percent partner, the 49 percent partner has no control whatsoever. The dilemma here is to decide which partner wants to have no control!
While any dentists jointly entering a new practice will have problems and obstacles to overcome, the appropriate application of forming an office-sharing agreement versus a partnership will eliminate many serious and contentious issues for the parties. The office-sharing approach is the most successful and effective approach for two people wishing to practice together. This interesting study examines how women in dentistry can pose both new challenges in practice transitions, as well as create innovative approaches to success.
Earl M. Douglas, DDS, MBA, is the founding president of American Dental Sales. He is president of Professional Practice Consultants Ltd. Dr. Douglas services the Southeast area of the United States, and has affiliates nationwide. He can be reached at (770) 664-1982, or visit his Web site at www.ppcsouth.com.
