Partnership math; retirement choices

Oct. 1, 2003
As the big boomer population of dentists ages, changes are on the horizon for both their personal lives and the direction of their practices.

Bill Blatchford, DDS

As the big boomer population of dentists ages, changes are on the horizon for both their personal lives and the direction of their practices. It is harvest time and choices must be made. A majority of older dentists enjoy their profession and do not want to quit practicing. Some of their reluctance may be due to what they perceive as a gap in their retirement funds. For others, it may be missing the people or just the sheer enjoyment of doing the clinical procedures.

For most retiring dentists, the choices are:

1) "Retire as you go" — In this scenario, the doctor continues practicing, but at a different pace, for as long as he desires. In making this decision, he looks at the hours he wants to practice, staffing needs, and the type of treatment he prefers to do.
2) Sell — Current market surveys show most practices are selling at 1.5 times net. The doctor's choice is to sell immediately or continue practicing for another 18 months and be even.
3) Hire an associate — Interviewing potential partners and hire them initially as an associate.
4) Bring in a partner — Sell half the practice and develop a partnership.

Let's examine the merits of a partnership. For purposes of our example, the existing doctor will be 55 years old with a stable general practice, currently netting him $300,000. The doctor is comfortable financially, enjoys most aspects of dentistry, and has worked hard to create this practice. He wants a partner to share the technical aspect of dentistry, so that he can slow down. He also wants to mentor a younger dentist and share the management responsibilities. The practice grosses $1 million annually, and has five full-time staff members. The net is $300,000. The potential partner qualifies to purchase half the practice for $225,000.

The retiring dentist's unspoken expectations are:

• Selling doctor will do more large cases on patients he has nurtured over the years.
• Purchasing doctor will start small by doing single fillings, children, and emergency patients.
• Selling doctor will continue with net of $300,000, while purchasing doctor builds practice.
• Together ,somehow, they will double production.

The unspoken expectations of the purchasing doctor are:

• Feels he is ready to do the larger cases as the selling doctor phases out.
• He should receive half the net, since he purchased half the practice.
• Selling doctor should feed patients to purchasing doctor.
• Selling doctor should see half the new patients.

Now comes the question — who is doing the partnership math? The purchasing doctor has a payment of $3,500 a month for his half of the practice. If this is not a practice merger, all income must be derived from the existing practice which currently is netting one doctor $300,000 ... and the selling doctor has no intention of reducing that net! When you sell half your practice and plan to stay on for several years, how can the new doctor pay for the practice and have a life? If the plan is to double the practice, what is the time frame to accomplish this and how much additional capital will be required? Practice choices through math — which will you choose? The number to remember is 1.5 times net of this practice is $450,000!

• Existing doctor could practice five more years with a net of $300,000 annually or $1.5 million for the five-year period. If he practices an additional 18 months with an additional net of $450,000, he would walk away with a grand total of $1.9 million.

• Existing doctor could continue to practice solo for five additional years, netting a total of $300,000 for five years ($1.5 million) and then sell the practice for $450,000, making a grand total of $1,950,000.

• Existing doctor could sell half the practice for $225,000 and continue to receive half his current net ($150,000) for five years ($750,000) for a grand total of $975,000. He then could sell the remainder of the practice for $225,000, giving him a grand total of $1.2 million.

• Existing doctor could practice solo for five years with an annual net of $300,000 ($1.5 million for five years). He could continuein solo practice three days a week for an additional five years, netting him $200,000 annually. Under this scenario, he would walk away with $2.5million.

To create a successful partnership, do the math and make sure the buyer fully understands your expectations.

Dr. Bill Blatchford's Custom Coaching Program is now available anytime, anywhere. Utilizing 18 years of practice-management experience with over 1,100 offices, Dr. Blatchford's custom program involves minimal travel and maximum personal time with the coach, interaction with other doctors and tons of support. Leadership, systems, case presentation skills, communication, and profitability are emphasized. He can be reached at (800) 578-9155 or visit his Web site at www.blatchford.com.

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