In today’s world of deferred retirements, more and more practice owners are opting to bring in an associate to join their practice. This decision allows senior dentists to take time off while still maintaining some income. However, it’s important to note that an associate buy-in is far more complex than simply selling a practice outright. It requires detailed planning, increased effort, and the understanding that finding the right associate may take time. In this article, we will explore the considerations and steps involved in planning for an associate buy-in.
Before embarking on the process of bringing in an associate, a practice owner must first define their goals. Do they want more free time, assistance with their workload, or are they looking to groom a potential buyer? Some practice owners expect the associate to build a new practice within their existing one, with the intention of eventually selling them that portion. However, this strategy often fails to yield the desired results.
To ensure a successful associate buy-in, practice owners must be willing to initially sacrifice some of their income in order to provide the associate with a stable income base. Proper planning is crucial to avoid frustration and disappointment later on. It’s essential to obtain a professional appraisal of the practice from the start, as it serves as a foundation for negotiations. Many associate buy-ins fail because they begin with only a handshake and no written documentation. Months later, associates may be presented with a purchase price that leaves them in shock, resulting in wasted time and effort.
Establishing Clear Agreements
To align expectations and avoid potential conflicts, it is imperative to have legal agreements in place before searching for an associate. These agreements include a purchase agreement, partnership agreement, and operating agreement. Furthermore, all parties should agree on a definite timetable and payment terms for the associate to buy into the practice. By having these agreements prepared in advance, the senior dentist can present them to potential candidates during the interview process. This approach ensures transparency and helps both parties make informed decisions.
Addressing Agreement Details
One crucial aspect to be outlined in the operating agreement is how partners will be compensated. Questions to consider include the percentage of each doctor’s production, the distribution of profits after expenses are paid, and whether profits will be divided according to equity or contributed practice collections. Additionally, it’s important to plan for the possible dissolution of the partnership in case it becomes necessary. This includes determining how assets, equipment, and staff will be divided between exiting and remaining partners.
Retirement planning is another critical consideration. Questions to address include whether the senior partner has the first option to retire before the junior partner, if they can prevent the junior partner from retiring before them, and whether a mandatory buy-out by the remaining partner is required. Additionally, the issue of selling the retiring partner’s interest to an outside party should be resolved, with the remaining partner given the right of first refusal. It’s essential to tackle these retirement-related matters prior to starting the partnership.
Bringing in an associate through a buy-in can be a promising way for practice owners to balance their workload, gain more free time, and groom future buyers. However, careful planning and clear agreements are essential for success. Engaging the services of an experienced dental practice transition specialist can significantly increase the chances of a successful associate buy-in.
Disclaimer: This article was written by Peter Mirabito, DDS, and Jed Esposito, MBA, partners in ADS Precise Consultants. They are experienced dental practice transition specialists based in Denver, Colo. To reach out to Dr. Mirabito, please call (800) 307-2537 or email [email protected].
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