What are the best ways to compensate a selling dentist who stays on with the practice for a time? I've heard some practices give the person 30% of collections or a similar formula, just like an associate, but I've also heard that paying a flat salary is best for others.
I usually recommend treating the selling dentist who wants to work in the practice as an associate. This means having an employment agreement drawn up by an attorney. Compensation is typically 30%-35% of dentist production with all expenses paid by the buyer. The usual term is up to one year with mutual annual renewals after that.
I recommend using a flat salary (on a daily basis) when the seller is in the office only to meet, greet, and introduce patients to the buyer. In addition, if the seller is training the buyer in a specific procedure, then a daily stipend makes sense.
When compensating a seller or an associate, it is very important to base the compensation on actual dentist production. This excludes hygiene production and x-rays from the formula since you're already paying the staff for these procedures. However, the dentist should get credit for hygiene exams.
A mistake many "technical" appraisers, who are not familiar with dental practices, make is using national compensation data from various sources and not tying the compensation directly to the practice itself. For example, I just finished testifying in a divorce case. The other appraiser used $178,000 to compensate an employed dentist to determine practice value. He did not take into account the size of the practice or the amount of hygiene done. Incorporating this information resulted in a salary of $277,000 for an employed dentist, which lowered this appraiser's value by almost $240,000! Needless to say, the spouse was not happy with the reduction in practice value.
TOM SNYDER, DMD, MBA
If you plan to keep the selling doctor on staff for a period of time and expect the doctor to provide clinical services, it is best to compensate him or her as an associate. A flat salary works best during a short-term employment period when the seller's primary function is to meet and greet patients, thus assisting with patient transfer. In this situation, the intention is not to require the seller to provide clinical services but merely to assist you in patient transfer.
A flat salary might be appropriate for those sellers who assist in patient transfer and have some limited clinical responsibility, such as performing hygiene checks. However, if your intention is to retain the seller for a longer period of time, compensating the person as an associate makes the most sense. We have found in the majority of the transitions we handle that the seller's typical commission rate varies between 33% and 37% of collections. However, this compensation rate might be lower or higher based on which part of the country you practice in.
The next point to consider is payment of lab fees. If you intend to pay 100% of the seller's lab fees, then a lower commission rate is warranted. However, if you want the seller to pay a portion of the lab expense, I suggest that this expense be charged at the same commission rate you are paying the seller-associate.
Of course, the decision to retain the seller should not be based solely on your need to seek assistance with patient transfer but also to meet patient demand. If your patient base requires additional doctor days beyond what you can handle, retaining the seller makes good sense. In fact, one of the benefits of a role-reversal sale is to retain the seller for a number of years. The profit generated by your seller-associate should pay for all or most of your practice acquisition loan, which makes this a good business decision.
Gary Schaub is the founder of HELP Appraisals & Sales Inc., a dental and medical appraisal and brokerage firm in Portland, Oregon. He is a member of ADS Transitions and can be reached at (503) 223-4357 or (855) 463-0101.
Tom Snyder, DMD, MBA, is the director of transition services for Henry Schein Professional Practice Transitions. He can be reached at (800) 988-5674 or Tom.Snyder@henryschein.com.