Typically, a retiring dentist can turn the practice over to the buyer as soon as sale agreements are signed and money changes hands. Specialist transitions are another story. This can be like herding cats, so be prepared.
The role of the specialist is to make the practice referral sources comfortable with the new specialist. As I tell my clients, "Now is the time to cash in your chips with your colleagues." Hopefully, these relationships are long-term and mutually satisfactory and your colleagues should give the new specialist a chance.
When is it time to find an associate or buyer?
Associates, future partners, or buyers may be added for the following reasons:
- Planning a satellite
- Easing the workload
- Adding new procedures
- As an exit strategy for retirement
Retirement planning should start two to five years before retirement. In any case, a comprehensive practice appraisal is the foundation for future personal and financial planning. This way, solid plans for the transition can be based upon facts and needs.
How do I keep my associate?
Usually, the question is answered with: "You work for me for a few months or years, then if we like each other, you can become a partner or take over my practice."
This approach many times ends in failure. The associate may feel cheated and resentful. The seller may feel victimized and has probably nurtured a competitor.
What causes these reactions? At first, both specialists have on rose-colored glasses. The associate is expecting to buy into the practice for minimal dollars in a few months. The senior specialist expects to receive top dollar for the practice after a few years. The result is chaos.
I try to put everything on the table ahead of time. Essential elements are:
- Agree on a time frame. I try to plan on a three- to six-month "honeymoon" phase, where either doctor can back out with minimal consequences. Then the buy-in phase automatically kicks in - although it may not actually occur for another six to 24 months.
- Complete the paperwork ahead of time. This can include an associate agreement, letter of intent, financing approval, and the practice price. At the end of the honeymoon phase, the final sale or partnership agreements are started.
- Pay attention to exit strategies and restrictive convenants.
You may be afraid of putting all of your cards face-up on the table, but it pays off. It is better to find out as early as possible that your potential partner may be more comfortable just being an employee.
How do I handle financing?
At this time, most practice transitions are easily financed. However, I have noticed that younger specialist buyers seem hesitant. It probably relates to the high debt loads that many carry after graduation.
The approach many physicians use may be necessary. The buyer is paid a competitive salary while working as an associate. Bonuses earned for exceeding normal production expectations are kept in a "bank" and not paid to the associate. When the time comes for the buy-in, these bonuses are credited to the practice sale. If the associate does not buy the practice, then the bonuses are "forfeited." This is a less painful approach that can motivate the associate to stay.
Specialty transitions can be difficult since there is a smaller market of buyers. As one of my colleagues says, "It is hard to breed unicorns." Plan ahead and maybe unicorn breeding will be successful for you. I hear they make excellent cat herders.
Gary Schaub is the founder and president of HELP Appraisals & Sales, Inc., a dental and medical appraisal and brokerage firm. He is a member of American Dental Sales and can be reached at (503) 223-4357, or e-mail email@example.com. See the ADS classified ads for names and phone numbers of ADS members in your area.