I WAS READY TO SELL, BUT…
By Mark Diekmann, D.D.S.
“My pension fund was totally destroyed in the recent stock market decline so I have decided that I need to continue practicing a few more years before I sell my practice!”
We wish we had just ten bucks for every time we have heard this excuse in past few years! We literally hear this from somewhere in the country almost everyday. But the real question is… are these dentists being wise or are they missing out on what may be the greatest opportunity of a lifetime?
Wise men find financial opportunity in both the good times and the bad times! It really boils down to having a positive attitude, a realistic perspective and, of course, a true and accurate understanding of your alternatives.
The first thing you need to understand is that selling and retiring are two separate events in your life and do not have to go hand in hand. In fact, it is frequently preferred that you don’t retire as soon as you sell. That is the basis of the PARAGON Presale Program. Selling and continuing to practice for as long as you desire is an option that so many doctors simply do not know exists. Your PARAGON consultant will be glad to share the details of the PARAGON Presale Program with you, but for now let’s just accept the fact that selling now and retiring later can easily be done.
So, is waiting to sell your practice because the stock market is down based on profitable logic or costly emotion? Once you know the facts, I think you will agree it is based solely on emotion!
There are more seller-aged dentists in the profession today than at any other time in the history of American dentistry. This is due to two primary factors: a tremendous increase in dental school enrollment in the early 70’s and 80’s and the “baby boomer” phenomena.
Even though there are far more seller-aged dentists today, there are far less dentists selling today than just two years ago. This is due almost solely from the stock market decline!
The fair market value of your practice is based on supply and demand. Although it was anticipated that market values would be falling at this time due to a large influx of new dentists in the 80’s and the baby boomers reaching seller age, the reduction of selling dentists caused by the stock market decline has actually resulted in practice values reaching an all time high. It is simple economics! If you have the only practice for sale in an area where 5 buyers wish to own, your practice is worth a tremendous premium!
Certain prime metropolitan areas and select rural markets have a current market mix whereby buyers out number sellers by as much as 10 to 1.
The current market mix of sellers to buyers is artificial, based solely on emotional thoughts, and will rapidly turn around when logic once again prevails. The demographics of the dental profession reveal a ratio of 4.7 seller-aged dentists to 1 buyer-aged dentist. Compare this to PARAGON’s current national ratio of 6.3 buyers to 1 seller. This backwards situation is obviously temporary, not logical and will not last for long. Practice market values will begin to fall soon! It is inevitable!
So, aside from your practice being at peak market value TODAY, there is also another powerful economic factor working in your favor… that is if you act wisely and timely. The old adage of “buy low and sell high” has never been more applicable! TODAY you have the ability to receive a premium price for your practice and invest those proceeds when the market is at its lowest point in years (aren’t you suppose to buy when stock prices are low?). BUT if you wait until the market rebounds to sell, you are guaranteed to have many more sellers listed; forcing practice values down…an opportunity to invest far less proceeds in a much higher stock market. Please explain to us what is logical about that financial plan?
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email articles@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Thursday, October 14, 2010
Wednesday, July 7, 2010
Practice Mergers - The Fastest and Best Way to Grow Your Practice!
PRACTICE MERGERS
By Mark Diekmann, D.D.S.
The continued growth and success of a solo practice is becoming more difficult every day. With increased competition, the influx of capitation programs, insurance clinics, advertising retail centers and an unpredictable economy, a practitioner must be prepared to consider ways of expanding his patient base. Many practitioners make the mistake of joining these programs to add more patients to their practice and discover that these fee conscious patients will leave the practice as soon as someone else offers them a lower fee.
A practice merger (buying a practice and moving it to your office or your practice to the seller’s office) is by far the best possible way to expand a dental practice. Patient retention averages more than 95%, if the transaction is handled properly. A merger adds instant profitability and assures a strong position in the future marketplace. The Seller typically will stay and work for you as an independent contractor until retirement.
A practice merger will allow you to increase the use of the facility, have a reason to hire an associate and overcome “Solo Economic Dependency” by enjoying an income derived from the associate’s income. You have made a considerable investment in your practice and perhaps it’s time to maximize its potential.
With a practice merger, you will not incur any additional fixed expenses, such as rent, utilities and telephone; you will get more work out of your existing staff, and will perhaps have to add only one or two additional staff members (generally from the seller). All other expenses will be directly related to production: lab fees, supplies and commissions paid to the selling dentist or associates. This maximizes income and minimizes risk.
The projection provided in this article is based on the selling dentist (or an associate) producing ALL the additional production resulting from the merger. The purchaser is doing NONE of the additional work.
This presents the opportunity to derive passive income from your dental practice (income generated without additional clinical production by you). As the seller phases out of the practice, the resulting overflow of patients allows for the addition of an associate, thereby further eliminating… “Solo Economic Dependency.”
You will reduce competition in the area (the seller) and will also prevent another, possibly more aggressive competitor, from purchasing the seller’s practice and establishing a foothold in your marketplace.
Every year that passes without a merger is another year of unrecognized (or lost) income that could have been generated. Also not completing your initial merger is preventing you from completing your second, third, fourth, etc., etc.
A practice merger works like this - the buyer acquires a practice and merges into one facility (either the seller's, the buyer's or a new facility). There is an immediate savings of overhead on the acquired practice (one facility rent is eliminated; some staff is eliminated, telephone expenses reduced, etc.).
The following is an example of what can be expected after the first 12 months of a typical merger.
EXAMPLE: Buyer acquires a practice with gross annual collections of $200,000 - selling price $150,000. The buyer pays a $30,000 down payment (borrowed from bank). Seller provides seller note for remaining $120,000. Seller remains with the practice and produces 100% of acquired production at a commission rate of 40%.
RESULTS: the purchaser will incur additional expenses of:
$ 16,000 Additional Assistant
$ 20,000 Lab Fees (10%)
$ 12,000 Supplies (6%)
$ 80,000 Seller Commission (40%)
$ 128,000 Total Expenses
SUMMARY: the purchaser will experience immediate positive cash flow:
$ 200,000 Gross Collected Income
$128,000 less Expenses
$27,200 less annual debt service
(lender and seller notes)
$ 44,800 Net First Year Cash Flow
NOTE: If Seller had not remained and the Purchaser had produced all of the acquired production, the first year cash flow would be $124,800. This equates to a 416% return on the original investment of $30,000.
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
By Mark Diekmann, D.D.S.
The continued growth and success of a solo practice is becoming more difficult every day. With increased competition, the influx of capitation programs, insurance clinics, advertising retail centers and an unpredictable economy, a practitioner must be prepared to consider ways of expanding his patient base. Many practitioners make the mistake of joining these programs to add more patients to their practice and discover that these fee conscious patients will leave the practice as soon as someone else offers them a lower fee.
A practice merger (buying a practice and moving it to your office or your practice to the seller’s office) is by far the best possible way to expand a dental practice. Patient retention averages more than 95%, if the transaction is handled properly. A merger adds instant profitability and assures a strong position in the future marketplace. The Seller typically will stay and work for you as an independent contractor until retirement.
A practice merger will allow you to increase the use of the facility, have a reason to hire an associate and overcome “Solo Economic Dependency” by enjoying an income derived from the associate’s income. You have made a considerable investment in your practice and perhaps it’s time to maximize its potential.
With a practice merger, you will not incur any additional fixed expenses, such as rent, utilities and telephone; you will get more work out of your existing staff, and will perhaps have to add only one or two additional staff members (generally from the seller). All other expenses will be directly related to production: lab fees, supplies and commissions paid to the selling dentist or associates. This maximizes income and minimizes risk.
The projection provided in this article is based on the selling dentist (or an associate) producing ALL the additional production resulting from the merger. The purchaser is doing NONE of the additional work.
This presents the opportunity to derive passive income from your dental practice (income generated without additional clinical production by you). As the seller phases out of the practice, the resulting overflow of patients allows for the addition of an associate, thereby further eliminating… “Solo Economic Dependency.”
You will reduce competition in the area (the seller) and will also prevent another, possibly more aggressive competitor, from purchasing the seller’s practice and establishing a foothold in your marketplace.
Every year that passes without a merger is another year of unrecognized (or lost) income that could have been generated. Also not completing your initial merger is preventing you from completing your second, third, fourth, etc., etc.
A practice merger works like this - the buyer acquires a practice and merges into one facility (either the seller's, the buyer's or a new facility). There is an immediate savings of overhead on the acquired practice (one facility rent is eliminated; some staff is eliminated, telephone expenses reduced, etc.).
The following is an example of what can be expected after the first 12 months of a typical merger.
EXAMPLE: Buyer acquires a practice with gross annual collections of $200,000 - selling price $150,000. The buyer pays a $30,000 down payment (borrowed from bank). Seller provides seller note for remaining $120,000. Seller remains with the practice and produces 100% of acquired production at a commission rate of 40%.
RESULTS: the purchaser will incur additional expenses of:
$ 16,000 Additional Assistant
$ 20,000 Lab Fees (10%)
$ 12,000 Supplies (6%)
$ 80,000 Seller Commission (40%)
$ 128,000 Total Expenses
SUMMARY: the purchaser will experience immediate positive cash flow:
$ 200,000 Gross Collected Income
$128,000 less Expenses
$27,200 less annual debt service
(lender and seller notes)
$ 44,800 Net First Year Cash Flow
NOTE: If Seller had not remained and the Purchaser had produced all of the acquired production, the first year cash flow would be $124,800. This equates to a 416% return on the original investment of $30,000.
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Wednesday, April 28, 2010
Do You Have Enough Patients?
DO YOU HAVE ENOUGH PATIENTS?
By Mark Diekmann, D.D.S.
Ask one hundred general dentists in the first 10 to 12 years of their career and at least ninety-nine of them will tell you “NO, I don’t have all the patients I need.” In fact, since we began assisting dentists in 1988, we have not met any general dentist (at any stage of their career), who really thought their practice had enough fee-for-service patients.
There is no way around it… the dental profession is all about patients. Nothing else matters unless you have a solid patient base. You can obtain equipment, office space, staff and supplies easy enough, but none of the above guarantees a steady flow of patients into your practice.
Not having enough quality patients causes many young dentists to keep their office doors open 5 days each week even when they really only have enough appointments to adequately fill 2 or 3 days each week. A growing dentist must remain open because that new patient may just call in with an emergency. If the dentist is not in the office and ready for business that new patient may call the next doctor listed in the phone book or the doctor next door. Remaining open for business is just merely a cost of doing business - an “Opportunity Cost”.
Of course you could pick up more patients by signing up for the various managed care and capitation programs. Actually these programs capitalize on unsuspecting doctors who have full-time overheads and part-time patient schedules. Those who do sign up find themselves much busier. They also feel better that the staff is working harder. But it doesn’t take long to discover that these types of new patients will not allow you to escalate to the income levels you desire. You are busy but not very profitable… a bad trade-off! And once you enter the managed care trap, it is quite hard to get free!
Let’s assume that you have not made the managed care mistake and fall into the category of spending money to increase your patient flow. You remain open every day because you are investing in your future - an “Opportunity Lost”. Let me explain. If your office rent is $1,500 per month and you really only need the facility 50% of the time right now, then it is like you are investing the additional $750 each month into your future growth. If your receptionist is being paid $1,400 per month and you really only need her 50% of the time, then it is like you are investing the additional $700 each month into your future growth. If your assistant is paid $1,200 per month and you really only need her 50% of the time, then it is like you are investing yet another $600 each month into your future. This $2,050 monthly investment will eventually pay off, but it will be very slow! Your monthly investment will gain you an average of 3 new patients each week… possibly 150 new patients each year… and maybe 1,500 new patients over the next 10 years.
A BETTER INVESTMENT! Seems to me that a better investment would be to invest that same $2,050 per month to receive 1,500 new patients TODAY! And I am not talking about managed care patients either… these are high quality, fee-for-service patients that are already accustomed to regularly visiting a dental office in your area.
You know that there are a lot of different ways to do everything. Some are good and some are not so good. But as far as building a base of quality patients, it really does not make a lot of sense to spend the time and the money it takes to build a mature practice over the next decade when you could be exactly where you want to be THEN… NOW!
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
By Mark Diekmann, D.D.S.
Ask one hundred general dentists in the first 10 to 12 years of their career and at least ninety-nine of them will tell you “NO, I don’t have all the patients I need.” In fact, since we began assisting dentists in 1988, we have not met any general dentist (at any stage of their career), who really thought their practice had enough fee-for-service patients.
There is no way around it… the dental profession is all about patients. Nothing else matters unless you have a solid patient base. You can obtain equipment, office space, staff and supplies easy enough, but none of the above guarantees a steady flow of patients into your practice.
Not having enough quality patients causes many young dentists to keep their office doors open 5 days each week even when they really only have enough appointments to adequately fill 2 or 3 days each week. A growing dentist must remain open because that new patient may just call in with an emergency. If the dentist is not in the office and ready for business that new patient may call the next doctor listed in the phone book or the doctor next door. Remaining open for business is just merely a cost of doing business - an “Opportunity Cost”.
Of course you could pick up more patients by signing up for the various managed care and capitation programs. Actually these programs capitalize on unsuspecting doctors who have full-time overheads and part-time patient schedules. Those who do sign up find themselves much busier. They also feel better that the staff is working harder. But it doesn’t take long to discover that these types of new patients will not allow you to escalate to the income levels you desire. You are busy but not very profitable… a bad trade-off! And once you enter the managed care trap, it is quite hard to get free!
Let’s assume that you have not made the managed care mistake and fall into the category of spending money to increase your patient flow. You remain open every day because you are investing in your future - an “Opportunity Lost”. Let me explain. If your office rent is $1,500 per month and you really only need the facility 50% of the time right now, then it is like you are investing the additional $750 each month into your future growth. If your receptionist is being paid $1,400 per month and you really only need her 50% of the time, then it is like you are investing the additional $700 each month into your future growth. If your assistant is paid $1,200 per month and you really only need her 50% of the time, then it is like you are investing yet another $600 each month into your future. This $2,050 monthly investment will eventually pay off, but it will be very slow! Your monthly investment will gain you an average of 3 new patients each week… possibly 150 new patients each year… and maybe 1,500 new patients over the next 10 years.
A BETTER INVESTMENT! Seems to me that a better investment would be to invest that same $2,050 per month to receive 1,500 new patients TODAY! And I am not talking about managed care patients either… these are high quality, fee-for-service patients that are already accustomed to regularly visiting a dental office in your area.
You know that there are a lot of different ways to do everything. Some are good and some are not so good. But as far as building a base of quality patients, it really does not make a lot of sense to spend the time and the money it takes to build a mature practice over the next decade when you could be exactly where you want to be THEN… NOW!
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Wednesday, March 24, 2010
ACQUISITION versus START-UP
ACQUISTION versus START-UP
By Dr. Mark Diekmann
So you either just graduated or will soon be graduating from dental school. You have already made the decision that you do not want to work for someone else. You know that practice ownership is the only way you can achieve the income level you desire. You have also learned that it is possible to obtain financing even if you are weighted down in school debt. But now you are struggling with the quintessential question:
“Should I buy an existing practice or start a practice from scratch?”
This is quite possibly the most important career decision you will ever be faced with and the choice you make now will most assuredly have a major impact on your entire career. Dental equipment salespeople suggest that a practice start-up is best; practice brokers state a practice acquisition is best. Your dental school professors may be advising you to take the associate route. Unfortunately, depending on which “expert” you talk with, you are finding that the so-called “informed opinions” are quite varied. Well not to be outdone, let us throw PARAGON’s two cents into the pot.
First of all, regardless of what others may tell you, you will virtually always have infinitely more take home income from a practice you acquire than from a practice you start cold! It is just simple logic! The source of cash flow for a dental practice is a quality patient base. A start-up practice has no patients; an established practice does.
Let’s look at a simple comparison: Dr. A and Dr. B would both like to own a practice with gross revenues of $350,000 per year. Both Dr. A and Dr. B believe that they can achieve an annual growth rate of $50,000 per year (this is a significantly higher growth rate than the national average for start-up practices). Dr. A acquires a practice for $175,000 that is currently grossing $250,000; Dr. B starts a practice from scratch purchasing $125,000 of new equipment, furniture and supplies. Dr. A has an immediate patient base of 1,500 active patients. Dr. B has an immediate patient base consisting of his family and close friends.
Growing at an annual pace of $50,000 per year, Dr. A quickly reaches his target annual gross revenue goal of $350,000 in just two short years. It takes seven years for Dr. B to reach his target gross revenue goal (again, the national average indicates that it would actually take 10 to 12 years to reach this gross income level in a start-up situation).
Dr. A’s practice provides total gross revenues of $2,300,000 and a total net profit of $1,100,000 (after annual debt service). Dr. B’s practice provides total gross revenues of $1,400,000 with a total net profit of $560,000 (after debt service).
Dr. A accumulates a net income of $540,000 more than Dr. B. More importantly, Dr. A enjoys a net income beginning with the very first month; Dr. B struggles just to pay his overhead for the first two years! Why? Dr. A acquired an established patient base while Dr. B’s patients literally trickled into the practice for the first few years.
Can you afford a mistake like this? Call PARAGON today to see what career opportunities await you!
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
By Dr. Mark Diekmann
So you either just graduated or will soon be graduating from dental school. You have already made the decision that you do not want to work for someone else. You know that practice ownership is the only way you can achieve the income level you desire. You have also learned that it is possible to obtain financing even if you are weighted down in school debt. But now you are struggling with the quintessential question:
“Should I buy an existing practice or start a practice from scratch?”
This is quite possibly the most important career decision you will ever be faced with and the choice you make now will most assuredly have a major impact on your entire career. Dental equipment salespeople suggest that a practice start-up is best; practice brokers state a practice acquisition is best. Your dental school professors may be advising you to take the associate route. Unfortunately, depending on which “expert” you talk with, you are finding that the so-called “informed opinions” are quite varied. Well not to be outdone, let us throw PARAGON’s two cents into the pot.
First of all, regardless of what others may tell you, you will virtually always have infinitely more take home income from a practice you acquire than from a practice you start cold! It is just simple logic! The source of cash flow for a dental practice is a quality patient base. A start-up practice has no patients; an established practice does.
Let’s look at a simple comparison: Dr. A and Dr. B would both like to own a practice with gross revenues of $350,000 per year. Both Dr. A and Dr. B believe that they can achieve an annual growth rate of $50,000 per year (this is a significantly higher growth rate than the national average for start-up practices). Dr. A acquires a practice for $175,000 that is currently grossing $250,000; Dr. B starts a practice from scratch purchasing $125,000 of new equipment, furniture and supplies. Dr. A has an immediate patient base of 1,500 active patients. Dr. B has an immediate patient base consisting of his family and close friends.
Growing at an annual pace of $50,000 per year, Dr. A quickly reaches his target annual gross revenue goal of $350,000 in just two short years. It takes seven years for Dr. B to reach his target gross revenue goal (again, the national average indicates that it would actually take 10 to 12 years to reach this gross income level in a start-up situation).
Dr. A’s practice provides total gross revenues of $2,300,000 and a total net profit of $1,100,000 (after annual debt service). Dr. B’s practice provides total gross revenues of $1,400,000 with a total net profit of $560,000 (after debt service).
Dr. A accumulates a net income of $540,000 more than Dr. B. More importantly, Dr. A enjoys a net income beginning with the very first month; Dr. B struggles just to pay his overhead for the first two years! Why? Dr. A acquired an established patient base while Dr. B’s patients literally trickled into the practice for the first few years.
Can you afford a mistake like this? Call PARAGON today to see what career opportunities await you!
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Wednesday, February 17, 2010
Are Selling Dentists Getting Younger?
ARE SELLERS GETTING YOUNGER?
Definitely YES! The average age of our sellers has dropped from 62.4 years old to 50.7 years young just over the past 10 years. And this propensity is continuing. We are listing more and more sellers in their mid 40’s all the time. In fact, we predict the average age of our sellers will be in the mid 40’s within the next 3 to 5 years.
Why so young? There are some extremely sound reasons for this trend. Burn-out, stress, boredom, disgust, OSHA are just a few reasons… but, quite frankly, the most recurrent reason for selling at a younger age is purely FINANCIAL!
Many doctors are discovering the PARAGON Pre-Sale Program as a life-changing alternative. The PARAGON Pre-Sale makes it possible to maintain your current take home income level and your present life style for as many years as you desire… while converting your current practice equity into a useable cash investment TODAY! This is a major financial advantage that is very hard to ignore.
For example, let’s say a 45-year-old doctor owns a practice worth $400,000. This doctor is busy enough and entrenched in the proverbial “comfort zone”. By his own admission, it is unlikely that he will put forth the effort to take the practice to a significantly higher level. He has been at or around this $400K value for several years now. If our 45-year-old converted his practice equity into cash today and invested the after-tax portion ($250,000) for the next 20 years at only 10% interest, he would accumulate $1,681,850 by age 65. Consequently, to net the exact same amount by selling the practice at retirement, he would have to sell the practice for $2,541,308 (paying taxes of $859,458 to net $1,681,850) at age 65. That means his practice would have to be grossing around 3.3 million a year at age 65. Are you kidding me? That is not even feasible enough to be classified as a fairy tale!
So what are his realistic options? He could obviously wait to sell because he feels he will eventually put the drive into building the practice gross income up. But even if he could muster the energy, he may still be fighting a losing battle, as far as practice equity is concerned; because the supply and demand trends in dentistry today favor a significant drop in overall dental practice equity values over the next decade. We are fast approaching a “buyer’s market” in which we will see far more sellers than buyers and market values falling (please read “The Diminishing Practice Value” article).
And without acquiring a practice for merger, could our 45-year-old really build his current practice up enough to make a difference anyway? Let’s see. If our 45-year-old dentist waits one more year to sell it would cost him $152,875 at age 65 ($250,000 invested at 10% for 19 years equals $1,528,975). This is about 30% of his current practice value just for procrastinating one year. That means he would have to increase his practice’s gross income by 30% next year just to break even. Can you realistically increase the gross income of your dental practice by 30% in just 12 short months? I once vowed to “never say never”… but I seriously doubt it!
Once a practice reaches its peak value it makes no financial sense not to sell… regardless of age. You can maintain a substantial current income for as long as you desire. You can work when you want to work and only see the patients you want to see. You can pick and choose the procedures you enjoy doing. You can accumulate significantly greater sums of money by retirement age by selling early. You can be in a position to retire at a much earlier age than those dentists who don’t sell early. There appears to be every reason to sell younger and, as far as we can see, no logical reason to put selling off!
And we did not even mention the inherent costs associated with the unknown… death, disability or extended illness. Either could destroy your practice value in a very short time! You owe it to yourself to explore your options. Call PARAGON today for a complimentary consultation. You will be very glad you did
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Definitely YES! The average age of our sellers has dropped from 62.4 years old to 50.7 years young just over the past 10 years. And this propensity is continuing. We are listing more and more sellers in their mid 40’s all the time. In fact, we predict the average age of our sellers will be in the mid 40’s within the next 3 to 5 years.
Why so young? There are some extremely sound reasons for this trend. Burn-out, stress, boredom, disgust, OSHA are just a few reasons… but, quite frankly, the most recurrent reason for selling at a younger age is purely FINANCIAL!
Many doctors are discovering the PARAGON Pre-Sale Program as a life-changing alternative. The PARAGON Pre-Sale makes it possible to maintain your current take home income level and your present life style for as many years as you desire… while converting your current practice equity into a useable cash investment TODAY! This is a major financial advantage that is very hard to ignore.
For example, let’s say a 45-year-old doctor owns a practice worth $400,000. This doctor is busy enough and entrenched in the proverbial “comfort zone”. By his own admission, it is unlikely that he will put forth the effort to take the practice to a significantly higher level. He has been at or around this $400K value for several years now. If our 45-year-old converted his practice equity into cash today and invested the after-tax portion ($250,000) for the next 20 years at only 10% interest, he would accumulate $1,681,850 by age 65. Consequently, to net the exact same amount by selling the practice at retirement, he would have to sell the practice for $2,541,308 (paying taxes of $859,458 to net $1,681,850) at age 65. That means his practice would have to be grossing around 3.3 million a year at age 65. Are you kidding me? That is not even feasible enough to be classified as a fairy tale!
So what are his realistic options? He could obviously wait to sell because he feels he will eventually put the drive into building the practice gross income up. But even if he could muster the energy, he may still be fighting a losing battle, as far as practice equity is concerned; because the supply and demand trends in dentistry today favor a significant drop in overall dental practice equity values over the next decade. We are fast approaching a “buyer’s market” in which we will see far more sellers than buyers and market values falling (please read “The Diminishing Practice Value” article).
And without acquiring a practice for merger, could our 45-year-old really build his current practice up enough to make a difference anyway? Let’s see. If our 45-year-old dentist waits one more year to sell it would cost him $152,875 at age 65 ($250,000 invested at 10% for 19 years equals $1,528,975). This is about 30% of his current practice value just for procrastinating one year. That means he would have to increase his practice’s gross income by 30% next year just to break even. Can you realistically increase the gross income of your dental practice by 30% in just 12 short months? I once vowed to “never say never”… but I seriously doubt it!
Once a practice reaches its peak value it makes no financial sense not to sell… regardless of age. You can maintain a substantial current income for as long as you desire. You can work when you want to work and only see the patients you want to see. You can pick and choose the procedures you enjoy doing. You can accumulate significantly greater sums of money by retirement age by selling early. You can be in a position to retire at a much earlier age than those dentists who don’t sell early. There appears to be every reason to sell younger and, as far as we can see, no logical reason to put selling off!
And we did not even mention the inherent costs associated with the unknown… death, disability or extended illness. Either could destroy your practice value in a very short time! You owe it to yourself to explore your options. Call PARAGON today for a complimentary consultation. You will be very glad you did
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Friday, February 5, 2010
A Better Way to Buy a Dental Practice
DUAL REPRESENTATION
At some point in your career you will discover that gaining access to quality patients will play an important roll in your quest for true success. Of course, you could spend money on advertising, or you could wait around for patients to filter in from referrals, but these methods are excruciatingly slow for building the right kind of practice. By far your best option is to simply purchase a large group of patients all at once from the dentist who controls access to those patients.
You may wish to do so in order to get your career off the ground OR to enhance the revenues and income you are currently deriving from your existing practice OR as insurance against the inroads of managed care on your present practice… for whatever reason you decide, the acquisition of an existing dental practice will be one of the most profitable and rewarding experiences of your life and professional career.
You should know, however, that purchasing a practice is a very complex process that unfolds over several months (or even years) and is not simply a matter of finding a practice in the classifieds; negotiating a "good deal"; and, living happily ever after. Purchasing a dental practice is not like buying a new car or a piece of real estate. In a very real way you will be acquiring a whole set of new relationships with people who do not know you and who may not trust you as either their new dentist or their new boss. You will not be able to see or touch most of what you are paying for until long after the ink is dry on your contracts. If this sounds a bit scary, it should! The dream of owning your own practice can quickly become your worst nightmare. There are innumerable ways to foul things up and many of your colleagues out there are on the cutting edge of finding new ways to foul this process up each and every day.
At PARAGON we call the process of acquiring a dental practice a practice transition... a word that stresses a sense of both time and change. The word transition further highlights the fact that we are dealing with a process, not an event. Over the past two decades, we have dedicated ourselves to understanding what really takes place during a transition, and how to make the process better, smoother, and far more profitable for our clients. Our experience in hundreds of dental practice transitions across the country has allowed us to develop and refine a truly superior method of transitioning professional practices. Once you understand this unique process, we think you'll agree.
We call this process Dual Representation. Our track record is impeccable. We have a virtual 100% closure ratio on all transitions that go to contract, yet amazingly, there are still those who maintain that it is "impossible" to represent the interests of two "opposing" parties in a transaction. What matters most is that the two sides achieve their long-term objectives. We have found that Dual Representation allows this to happen in a powerful way.
Of course, skeptics maintain that unilateral representation has worked very well in real estate and other brokered transactions for many years. To that we simply say that purchasing a dental practice is not at all like purchasing a piece of real estate. When a buyer and seller sit down to hammer out a real estate transaction they can posture and cajole and play real hardball. After all, the property itself has no life of its own and will be the same whether the purchaser is a “White Knight” or “Attila the Hun”. The two sides certainly do not have to live together in the house after the sale. They don't even have to like each other. Surely, no tenant will leave because the landlord didn't get a fair shake. Not so with a dental practice. Damage done during arduous negotiation eventually comes home to roost. Staff members are usually the first to pick up on it. Later it makes its way to the patients, who begin to leave for unexplained reasons. Sometimes the seller himself lets the word out. Other times it is a single remark to a staff member at a stressful moment that takes on a life of its own and makes its way back to the patients. Either way, the paradox remains -- the more a deal is negotiated… the more everyone loses.
Dual Representation dictates that we develop and maintain a client / consultant relationship with both the buyer and seller in every transaction. For the seller, this means that we take the time to understand his or her objectives and that we not allow those objectives to be compromised. After all, it is the seller that has a lifetime of toil and effort at stake. For the buyer, this means that we develop a keen awareness of his or her goals and aspirations and that we do everything in our power to assist in accomplishing those goals. After all, it is the buyer who will put his future on the line to acquire a practice. It also means that we take great care to make sure that the two clients in a transaction have compatible goals and objectives. This concept is totally foreign to the typical brokered transactions where virtually any warm body is a candidate to buy. Whenever we work toward a transition with our clients, the question is always, "Are the needs and objectives of these two individuals sufficiently compatible to allow a true Win/Win transaction, or will someone need to compromise their objectives in order to get a deal done?"
Whereas Dual Representation may appear on the surface to be a serious conflict of interest, it is in reality a mechanism for bringing integrity and discipline to the sale process. As an intermediary expert with fiduciary responsibilities extending to both parties, we must make sure that the transactions we put together are absolutely appropriate and fair to all concerned. We must be prepared to recommend that a deal be passed rather than forced, because with Dual Representation, we live or die by the success of the transaction. Dual Representation forces us to be long-term goal oriented about our business and to only facilitate equitable transactions. Brokers, on the other hand, can walk away with their fee and always blame the buyer or the seller, thus disclaiming any responsibility for fouling things up if the transition does not go well.
In his best-selling book, Seven Habits of Highly Effective People, Dr. Stephen Covey describes the true nature of a Win/Win transaction as the only viable option in business deals. The alternatives of Lose/Win, Win/Lose, and Lose/Lose, are all unacceptable in the long run because they will all eventually lead to undesirable results. As Dr. Covey so aptly states, "There's no way to achieve Win/Win ends with Win/Lose or Lose/Win means." - precisely what the traditional methods of unilateral representation in practice sales have in common. It is critical to understand that we are not dealing in a zero-sum game where the pie is only so big with the reality that for one side to get, the other side has to give. No one party has to gain at the other's expense. In fact, just the opposite is true. If both parties become sensitive to the needs of the other, and if they can clearly see that the realization of their individual goals and objectives are intertwined, then the synergy that results can propel the practice and the doctors to a far greater degree of success than they ever dreamed possible. That is why at PARAGON it is “Win/Win” or it is NO DEAL!
There is something else you should know if you are about to buy a dental practice. It is the fundamental truth that what really matters the most is not how much you pay for the practice, but what you actually receive for the money invested. PARAGON had a client who passed up an opportunity to acquire a wonderful practice grossing $400,000 per year in the best part of town. The buyer was also contacted by a practice broker who offered the buyer a great deal on another practice grossing about the same amount as our opportunity. The broker's great deal was priced $100,000 less, so the buyer passed on our practice and bought the practice the broker offered. PARAGON later sold the original practice for its full value. Three years later the buyer who got the great deal approached us at a dental convention and told us of his experience. The past three years had been a living nightmare and financial survival was truly day to day. What he thought was a great deal was in reality a carefully disguised disaster. On the other hand, our client who purchased the original practice for $100,000 more was now earning well into mid six figures with no concern at all for his financial future. The bottom line is that it is not what you pay for a practice, but what you end up with that truly matters… and what you end up with is largely a function of the process you use to acquire your practice.
If you remember nothing else from this article, please remember that everyone deserves to win. You merely have to decide that you want the transaction to be fair for all… and it happens! A "Win/Win" transaction is all that is acceptable to PARAGON and we know dual representation accomplishes this goal.
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
At some point in your career you will discover that gaining access to quality patients will play an important roll in your quest for true success. Of course, you could spend money on advertising, or you could wait around for patients to filter in from referrals, but these methods are excruciatingly slow for building the right kind of practice. By far your best option is to simply purchase a large group of patients all at once from the dentist who controls access to those patients.
You may wish to do so in order to get your career off the ground OR to enhance the revenues and income you are currently deriving from your existing practice OR as insurance against the inroads of managed care on your present practice… for whatever reason you decide, the acquisition of an existing dental practice will be one of the most profitable and rewarding experiences of your life and professional career.
You should know, however, that purchasing a practice is a very complex process that unfolds over several months (or even years) and is not simply a matter of finding a practice in the classifieds; negotiating a "good deal"; and, living happily ever after. Purchasing a dental practice is not like buying a new car or a piece of real estate. In a very real way you will be acquiring a whole set of new relationships with people who do not know you and who may not trust you as either their new dentist or their new boss. You will not be able to see or touch most of what you are paying for until long after the ink is dry on your contracts. If this sounds a bit scary, it should! The dream of owning your own practice can quickly become your worst nightmare. There are innumerable ways to foul things up and many of your colleagues out there are on the cutting edge of finding new ways to foul this process up each and every day.
At PARAGON we call the process of acquiring a dental practice a practice transition... a word that stresses a sense of both time and change. The word transition further highlights the fact that we are dealing with a process, not an event. Over the past two decades, we have dedicated ourselves to understanding what really takes place during a transition, and how to make the process better, smoother, and far more profitable for our clients. Our experience in hundreds of dental practice transitions across the country has allowed us to develop and refine a truly superior method of transitioning professional practices. Once you understand this unique process, we think you'll agree.
We call this process Dual Representation. Our track record is impeccable. We have a virtual 100% closure ratio on all transitions that go to contract, yet amazingly, there are still those who maintain that it is "impossible" to represent the interests of two "opposing" parties in a transaction. What matters most is that the two sides achieve their long-term objectives. We have found that Dual Representation allows this to happen in a powerful way.
Of course, skeptics maintain that unilateral representation has worked very well in real estate and other brokered transactions for many years. To that we simply say that purchasing a dental practice is not at all like purchasing a piece of real estate. When a buyer and seller sit down to hammer out a real estate transaction they can posture and cajole and play real hardball. After all, the property itself has no life of its own and will be the same whether the purchaser is a “White Knight” or “Attila the Hun”. The two sides certainly do not have to live together in the house after the sale. They don't even have to like each other. Surely, no tenant will leave because the landlord didn't get a fair shake. Not so with a dental practice. Damage done during arduous negotiation eventually comes home to roost. Staff members are usually the first to pick up on it. Later it makes its way to the patients, who begin to leave for unexplained reasons. Sometimes the seller himself lets the word out. Other times it is a single remark to a staff member at a stressful moment that takes on a life of its own and makes its way back to the patients. Either way, the paradox remains -- the more a deal is negotiated… the more everyone loses.
Dual Representation dictates that we develop and maintain a client / consultant relationship with both the buyer and seller in every transaction. For the seller, this means that we take the time to understand his or her objectives and that we not allow those objectives to be compromised. After all, it is the seller that has a lifetime of toil and effort at stake. For the buyer, this means that we develop a keen awareness of his or her goals and aspirations and that we do everything in our power to assist in accomplishing those goals. After all, it is the buyer who will put his future on the line to acquire a practice. It also means that we take great care to make sure that the two clients in a transaction have compatible goals and objectives. This concept is totally foreign to the typical brokered transactions where virtually any warm body is a candidate to buy. Whenever we work toward a transition with our clients, the question is always, "Are the needs and objectives of these two individuals sufficiently compatible to allow a true Win/Win transaction, or will someone need to compromise their objectives in order to get a deal done?"
Whereas Dual Representation may appear on the surface to be a serious conflict of interest, it is in reality a mechanism for bringing integrity and discipline to the sale process. As an intermediary expert with fiduciary responsibilities extending to both parties, we must make sure that the transactions we put together are absolutely appropriate and fair to all concerned. We must be prepared to recommend that a deal be passed rather than forced, because with Dual Representation, we live or die by the success of the transaction. Dual Representation forces us to be long-term goal oriented about our business and to only facilitate equitable transactions. Brokers, on the other hand, can walk away with their fee and always blame the buyer or the seller, thus disclaiming any responsibility for fouling things up if the transition does not go well.
In his best-selling book, Seven Habits of Highly Effective People, Dr. Stephen Covey describes the true nature of a Win/Win transaction as the only viable option in business deals. The alternatives of Lose/Win, Win/Lose, and Lose/Lose, are all unacceptable in the long run because they will all eventually lead to undesirable results. As Dr. Covey so aptly states, "There's no way to achieve Win/Win ends with Win/Lose or Lose/Win means." - precisely what the traditional methods of unilateral representation in practice sales have in common. It is critical to understand that we are not dealing in a zero-sum game where the pie is only so big with the reality that for one side to get, the other side has to give. No one party has to gain at the other's expense. In fact, just the opposite is true. If both parties become sensitive to the needs of the other, and if they can clearly see that the realization of their individual goals and objectives are intertwined, then the synergy that results can propel the practice and the doctors to a far greater degree of success than they ever dreamed possible. That is why at PARAGON it is “Win/Win” or it is NO DEAL!
There is something else you should know if you are about to buy a dental practice. It is the fundamental truth that what really matters the most is not how much you pay for the practice, but what you actually receive for the money invested. PARAGON had a client who passed up an opportunity to acquire a wonderful practice grossing $400,000 per year in the best part of town. The buyer was also contacted by a practice broker who offered the buyer a great deal on another practice grossing about the same amount as our opportunity. The broker's great deal was priced $100,000 less, so the buyer passed on our practice and bought the practice the broker offered. PARAGON later sold the original practice for its full value. Three years later the buyer who got the great deal approached us at a dental convention and told us of his experience. The past three years had been a living nightmare and financial survival was truly day to day. What he thought was a great deal was in reality a carefully disguised disaster. On the other hand, our client who purchased the original practice for $100,000 more was now earning well into mid six figures with no concern at all for his financial future. The bottom line is that it is not what you pay for a practice, but what you end up with that truly matters… and what you end up with is largely a function of the process you use to acquire your practice.
If you remember nothing else from this article, please remember that everyone deserves to win. You merely have to decide that you want the transaction to be fair for all… and it happens! A "Win/Win" transaction is all that is acceptable to PARAGON and we know dual representation accomplishes this goal.
ã Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
Thursday, January 21, 2010
Can The Practice You Are In Or Considering Joining Support An Associate?
IS IT TIME FOR AN ASSOCIATE?
This may be the most frequently asked question PARAGON consultants encounter. Dentistry must be the most associate-active of profession of all health-care professions. Dentists seem to always be considering bringing an associate into the practice. Unfortunately, however, very few dentists bring in an associate at the right time or for the right reason. In fact, many dentists go through numerous associates without ever knowing the real reason relationship does not work out as planned.
There is a right time and a right situation to consider an associate. But first let’s discuss the wrong reasons we encounter over and over.
The most common reason that dentists bring in an associate is because they are just not busy enough. As strange as this may sound it is true! As the dentist begins to examine the problem he realizes that he is no longer getting as many new patients as he once did. Further examination reveals that his overall patient base is getting older and older each year and these patients need less dental work – the dentist has already done the bulk of the work. He also soon realizes that the lack of new patients is a direct result of not getting the younger patients he once was getting.
The established dentist decides that if he brings in a younger associate dentist then the younger patients will start coming back into the practice. This is really a logical thought. A patient base often does grow older as the dentist grows older. The bulk of most dentist’s patients are within 10 years either side of the dentist’s age. It is logical that that lost generation may indeed come back into the practice if a younger dentist is available. After all, the new dentist is also from that same lost generation.
But the question is if this is really a valid reason for an established practice to bring in an associate? No, and in fact, this associateship arrangement is almost always doomed to fail. The problem is that the patients are coming to the practice to see the younger associate and if the associate leaves the practice more than likely the patients will follow the associate. Statistically, in over 90% of the cases we have encountered since 1988, an associate will eventually leave the practice to set up his or her own practice or get involved in another associateship!
Why? Because sooner or later the associate will discover that he is building a practice within a practice and that he really does not need the host dentist like he or she once thought. These young dentists begin to wonder why they should allow a host dentist to earn 50% or 60% of their collected production when they could enjoy 100%?
Another common reason that dentists hire associates is to fully utilize their facility. The established dentist in this situation may only be working 4 days a week and never in the evenings or weekends. The established dentist figures that a hungry associate will be agreeable to working Fridays, Saturdays and some evenings. The facility would then be fully utilized. Good idea?
It will work for awhile but not in the long run. Why? The associate eventually discovers that he or she is building a practice within a practice and will leave to set up his or her own practice. When the associate leaves he or she often takes some staff and patients with them. This scenario happens frequently and is often very costly to the established dentist. Fro example, we know of an associate who married the host’s hygienist and took the front office person to his new practice. The result was that the host dentist lost more than $150,000 in annual gross practice revenues in addition to what the associate had been producing. It was financially devastating.
A third common reason associates enter practices is because the host dentist is anticipating selling his practice and wants to see if the new doctor can handle it. This is a valid reason to bring in an associate, but unfortunately, it is rarely structured properly. This is typically a totally ambiguous relationship of “lets see how we like each other and then if everything works out OK you can buy me out”. There is hardly ever a contract and if there is a contract it is typically inadequate with little to no protection for either the established dentist or the associate. The host dentist is tired and wanting to slow down, but since there is no commitment by either party, he does not usually slow down at all during this ambiguous “look see” period. The established dentist will rarely refer patients to the associate so the associate is frequently not very busy. Even if the intention was to see if the associate can handle the practice, the associate hardly ever gets a chance to prove he or she can. These relationships begin on a lack of trust by both parties and generally end ugly.
There are only TWO valid scenarios for bringing an associate into your practice.
First scenario: you need an associate because you are entirely too busy! You have more patients than you can handle. You are booked so far out that you are losing patients because they can’t get into the practice in a reasonable amount of time. You need another pair of doctor hands just to keep up with your work load! In this scenario the associate will be busy right away!
or
Second scenario: you are ready to start slowing down and phasing out toward retirement. Maybe because you are tired or maybe because you have accomplished your financial goals. Whatever the reason you need another pair of doctor hands to handle the patients you are ready (right now) to pass on to the associate. In this scenario the associate will be busy right away!
There is only ONE right way to bring an associate into your practice – a fully committed equity associateship arrangement.
In the equity associate structure, the established dentist and the associate are both contractually committed to the eventual transfer of practice ownership. The equity associateship arrangement can be structured as either a Deferred PreSale (seller will remain with the practice as the buyer’s associate after the sale), or a Deferred Sale (seller will leave the practice after the sale), or a Deferred Co-Ownership Program (host and associate eventually become equal co-owners in the practice).
Regardless of the desired structure, the plan must have a clearly defined method of allowing “sweat equity” credit to the associate for what he or she contributes in practice growth over and above what the practice was producing when the associate entered the practice. There must be a comprehensive contract protecting the interests of both the established dentist and the new associate. The exact deferral period (time lag to the buy-in or buy-out date) must be clearly defined in the contract (however, it is not unusual for the host and associate to accelerate the buy-in or buy-out date in these transactions). The exact formula for determining the buy-in or buy-out price is pre-determined and defined in the contract. The exact terms of the buy-in or buy-out are pre-determined and defined in the contract. The contract clearly defines the working relationship of the parties after the buy-in or buy-out, etc., etc.
Get the point? There is nothing left to the imagination in these critical relationships. Everything is clearly defined and pre-determined by contract. The success rate of PARAGON’s various deferred transition programs is virtually 100% as opposed to the 90% to 95% failure rate of standard associateship arrangements.
An associateship definitely has its place in the dental community, but only if the relationship is structured properly. Don’t become a statistic… and please, please don’t jeopardize your largest asset. Call PARAGON for professional guidance on successful practice transitions!
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
This may be the most frequently asked question PARAGON consultants encounter. Dentistry must be the most associate-active of profession of all health-care professions. Dentists seem to always be considering bringing an associate into the practice. Unfortunately, however, very few dentists bring in an associate at the right time or for the right reason. In fact, many dentists go through numerous associates without ever knowing the real reason relationship does not work out as planned.
There is a right time and a right situation to consider an associate. But first let’s discuss the wrong reasons we encounter over and over.
The most common reason that dentists bring in an associate is because they are just not busy enough. As strange as this may sound it is true! As the dentist begins to examine the problem he realizes that he is no longer getting as many new patients as he once did. Further examination reveals that his overall patient base is getting older and older each year and these patients need less dental work – the dentist has already done the bulk of the work. He also soon realizes that the lack of new patients is a direct result of not getting the younger patients he once was getting.
The established dentist decides that if he brings in a younger associate dentist then the younger patients will start coming back into the practice. This is really a logical thought. A patient base often does grow older as the dentist grows older. The bulk of most dentist’s patients are within 10 years either side of the dentist’s age. It is logical that that lost generation may indeed come back into the practice if a younger dentist is available. After all, the new dentist is also from that same lost generation.
But the question is if this is really a valid reason for an established practice to bring in an associate? No, and in fact, this associateship arrangement is almost always doomed to fail. The problem is that the patients are coming to the practice to see the younger associate and if the associate leaves the practice more than likely the patients will follow the associate. Statistically, in over 90% of the cases we have encountered since 1988, an associate will eventually leave the practice to set up his or her own practice or get involved in another associateship!
Why? Because sooner or later the associate will discover that he is building a practice within a practice and that he really does not need the host dentist like he or she once thought. These young dentists begin to wonder why they should allow a host dentist to earn 50% or 60% of their collected production when they could enjoy 100%?
Another common reason that dentists hire associates is to fully utilize their facility. The established dentist in this situation may only be working 4 days a week and never in the evenings or weekends. The established dentist figures that a hungry associate will be agreeable to working Fridays, Saturdays and some evenings. The facility would then be fully utilized. Good idea?
It will work for awhile but not in the long run. Why? The associate eventually discovers that he or she is building a practice within a practice and will leave to set up his or her own practice. When the associate leaves he or she often takes some staff and patients with them. This scenario happens frequently and is often very costly to the established dentist. Fro example, we know of an associate who married the host’s hygienist and took the front office person to his new practice. The result was that the host dentist lost more than $150,000 in annual gross practice revenues in addition to what the associate had been producing. It was financially devastating.
A third common reason associates enter practices is because the host dentist is anticipating selling his practice and wants to see if the new doctor can handle it. This is a valid reason to bring in an associate, but unfortunately, it is rarely structured properly. This is typically a totally ambiguous relationship of “lets see how we like each other and then if everything works out OK you can buy me out”. There is hardly ever a contract and if there is a contract it is typically inadequate with little to no protection for either the established dentist or the associate. The host dentist is tired and wanting to slow down, but since there is no commitment by either party, he does not usually slow down at all during this ambiguous “look see” period. The established dentist will rarely refer patients to the associate so the associate is frequently not very busy. Even if the intention was to see if the associate can handle the practice, the associate hardly ever gets a chance to prove he or she can. These relationships begin on a lack of trust by both parties and generally end ugly.
There are only TWO valid scenarios for bringing an associate into your practice.
First scenario: you need an associate because you are entirely too busy! You have more patients than you can handle. You are booked so far out that you are losing patients because they can’t get into the practice in a reasonable amount of time. You need another pair of doctor hands just to keep up with your work load! In this scenario the associate will be busy right away!
or
Second scenario: you are ready to start slowing down and phasing out toward retirement. Maybe because you are tired or maybe because you have accomplished your financial goals. Whatever the reason you need another pair of doctor hands to handle the patients you are ready (right now) to pass on to the associate. In this scenario the associate will be busy right away!
There is only ONE right way to bring an associate into your practice – a fully committed equity associateship arrangement.
In the equity associate structure, the established dentist and the associate are both contractually committed to the eventual transfer of practice ownership. The equity associateship arrangement can be structured as either a Deferred PreSale (seller will remain with the practice as the buyer’s associate after the sale), or a Deferred Sale (seller will leave the practice after the sale), or a Deferred Co-Ownership Program (host and associate eventually become equal co-owners in the practice).
Regardless of the desired structure, the plan must have a clearly defined method of allowing “sweat equity” credit to the associate for what he or she contributes in practice growth over and above what the practice was producing when the associate entered the practice. There must be a comprehensive contract protecting the interests of both the established dentist and the new associate. The exact deferral period (time lag to the buy-in or buy-out date) must be clearly defined in the contract (however, it is not unusual for the host and associate to accelerate the buy-in or buy-out date in these transactions). The exact formula for determining the buy-in or buy-out price is pre-determined and defined in the contract. The exact terms of the buy-in or buy-out are pre-determined and defined in the contract. The contract clearly defines the working relationship of the parties after the buy-in or buy-out, etc., etc.
Get the point? There is nothing left to the imagination in these critical relationships. Everything is clearly defined and pre-determined by contract. The success rate of PARAGON’s various deferred transition programs is virtually 100% as opposed to the 90% to 95% failure rate of standard associateship arrangements.
An associateship definitely has its place in the dental community, but only if the relationship is structured properly. Don’t become a statistic… and please, please don’t jeopardize your largest asset. Call PARAGON for professional guidance on successful practice transitions!
Paragon, Inc. All rights reserved. For more information on this or other PARAGON articles contact PARAGON at 1.866.898.1867 or via email info@paragon.us.com. Other articles are available for review on PARAGON’s website: www.paragon.us.com.
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