by Bill Blatchford, DDS
For more on this topic, go to www.dentaleconomics.com and search using the following key words: boomers, partnerships, retirement, associates, practice sales, Bill Blatchford.
As 6,000 boomer dentists approach their “end game” each year, a whole business has been created to take care of the various avenues from which they might choose. There are scenarios for full partnerships and uneven partnerships, as well as for a full purchase with promises that the selling doctor can stay on and make just as much money as when he or she was the owner and boss.
Most dentists are hesitant to pull the plug, so they usually continue to stay involved in some fashion — at least emotionally. They are not quite prepared financially for the big retirement so they continue to work. Seminars tout the attraction of selling right away because “you can continue to be the associate and earn just what you are netting now.”
This is definitely every seasoned dentist's dream, for it fulfills many desires:
- Mentoring a younger dentist with your 30 years of skills
- Relieving you of any leadership responsibilities
- Eliminating financial pressures of payroll and payables
- Doing fine work on patients of your choice
- Creating your own work schedule
- Doing only the types of treatment you like
- Taking home the same income as when you owned
The purchasing doctor is excited to have a solid practice, and hopefully has been represented well in this sale without having relied only on the seller's broker. This is an important point because even though the seller's broker is friendly and helpful, the purchasing doctor needs to have his or her own representative. In all other fields except dentistry, it is illegal for the same broker to represent both the buyer and seller. This is really the subject for another article.
The purchasing doctor also has expectations:
- Being the leader
- Earning a solid income
- Controlling the practice's expenses
- Being responsible for production
- Looking forward to doing some challenging dentistry
All is fine as the sale takes place. The younger doctor purchases through a bank, and the selling doctor has the money from the purchase.
As the new sole owner becomes responsible for all the bills and payroll, he or she realizes several things:
- He or she is now responsible for all the payables.
- There are no guidelines for the new associate's schedule or production level.
- It takes a lot of money to keep this practice going.
- Something isn't right, but what?
What the new doctor finds is that every month there is not enough money to cover the practice payment, payroll, bills, and a salary. The selling doctor is able to make his or her own schedule and, of course, patient and team loyalty is in his or her favor. Though an associate, the selling doctor is viewed by the patients and team as the experienced and senior doctor. He or she has big production in fewer days, and the purchasing doctor ends up doing all of the smaller treatments.
The production totals are not increasing as was touted in the beginning. Marketing continues as before. The selling dentist is not turning patients away and did everything possible to attract new patients before the sale.
It is clear that a conversation needs to take place. This practice does not have the production now to support two doctors. This is a numbers game, and the leader must make an important decision based on the numbers.
Let's say the practice is collecting $1 million. The expenses for staff, lab, rent, etc., are approximately $700,000. This leaves $300,000 for the new owner to make the bank payment of approximately $150,000, and $150,000 to pay the salary for two dentists.
The selling dentist had been netting $300,000 and is expecting that important promise to continue. What would be your decision as the purchasing dentist?
The conversation might go like this: “Doctor, I cannot afford you. I have done my numbers, and you can work here and produce $X a month. You can produce it in one week or one day.”
The associate may react with, “I need to continue working and my patients are asking for me.”
The purchasing doctor's response needs to be, “I understand but this is what I can afford. Your patients are now my patients. If you need to continue working more, you should have thought of that before. With your covenant not to compete, you can find work out of the area. I know this sounds harsh. But the bottom line is, I cannot afford you.”
Dr. Blatchford's book, “Blatchford BLUEPRINTS — the Art of Creating Practice Success,” is available at www.blatchford.com for $39. Profits go to the Juvenile Diabetic Research Foundation. Dr. Blatchford is speaking at the AAID convention in New Orleans Nov. 11–14. CareCredit has produced a complimentary CD called “Business Principles in Any Economy.”