Transitional Partner to Co-Owner… Is This the Right Choice For Your Practice?

Kathy Lamont, RDH

Did you know that the average time before a dental associate leaves is 18 months? Any idea how much replacing an associate costs today?

The turnover of an associate dentist is both financially and emotionally costly. Imagine continuing this same cycle with a string of dental associate failures – what does that tally come to? Think about that for a minute.

For example, If your associate makes $150,000 a year, the estimated cost to replace them can be upwards of $320,000*. If you have to hire and replace a second associate, you are now looking at well over $500,000. This may be shocking to you, but the fact is dentist owners don’t take into account the following costs associated with associate turnover:

• Loss of productivity as the associate becomes disconnected after deciding to leave.

• Diminished employee productivity, who see high associate turnover.

• The cost of hiring a new associate, including the recruiting cost, advertising, interviewing time, and attorney fees.

• It takes time for the new associate to ramp up production.

• Cost of onboarding a new person, including clinical and non- clinical training.

• Trust impact—Whenever someone leaves, other employees and patients ask, "why?"

To stop the revolving door of associates, we need to understand why they leave.

• Rising student debt - The average debt per graduating senior in 2020 was over $300,000, according to the American Student Dental Association**. This high level of debt can jeopardize a new dentist’s ability to choose their preferred career path.

• Practice is not prepared; lacking in systems and protocols –Most dentist owners do not consider if the practice is ready to add an associate. Practices lacking well-defined and executed systems and protocols make it almost impossible to have a long-term successful associate. These offices are often chaotic, and adding an associate is not the answer to the chaos of any practice.

• Not enough patients to add an associate – I often hear from associates that the reason they left was due to the doctor owner seeing the majority of the patients and moving treatment from the associates' schedule to theirs. This is a clear sign the practice does not have enough patients to add an associate.

• Poor communication with the team – Team engagement is essential to the success of your associate. The team is often left out of the equation when bringing in an associate. If the team has not been given the tools and scripts to answer patient questions, it can cause anxiety and resentment.

• No onboarding or integration plan for the Associate – Post signing the employee agreement, there is very little thought and planning to onboarding and training the associate. Teams tell me they feel unappreciated and resentful and feel responsible for training the associates. Some of your team may begin to feel like the new associate is a subordinate and treat them as an underling.

• No clinical mentoring plans - No written clinical mentoring plan. New dental school graduates are looking for mentorship. In the absence of mentoring, there is often frustration for both the dentist owner and associate.

• No scheduling protocol – How will patients be shared? When the scheduling protocol is nonexistent, there is often conflict with the business team, dentist owner, and the associate.

• No clear path to ownership – Often, there are loose or vague mentions of possible ownership. I can’t say this enough, but don’t leave this to a handshake or verbal agreement. Nothing good comes from this but unrealized expectations and a feeling that both parties have wasted their time and money.

In the last 20 years, there has been a significant shift in private practice ownership. Private practice ownership has declined to 76%, with solo ownership down to 46.2 %***. In contrast, dentists affiliated with a DSO have risen from 7.4% to 10.4% in just 3 years.**** This rapid growth of the DSO market can be attributed to signing bonuses for paying down student debt, freedom from ownership debt, the ability to focus on dentistry and patient care, and most recently, equity or profit sharing for their associate dentists.

It is time for private practice owners to sit up and take notice of the changing times. If the private practice owner is going to thrive in the growing DSO market, the mindset must change. I want you to consider moving from solo private practice to a partnership.

Look at this scenario - A solo dentist practice collecting $1,000,000 has a profit of 40% or $400,000 a year*****. A two-dentist partnership can have profits of $580,000. This increase in profits is due to the sharing of fixed expenses and economies of scale when purchasing sundries, equipment, and lab fees. As a result of the increased collections, your practice value will rise.

Partnerships offer other advantages other than increased profits and a higher practice valuation. It also offers the freedom to take time off, go on vacation, and take maternity or medical leave without the financial burdens of the office overhead. It becomes easier to offer 401k, profit sharing, or health insurance for your team.

When dentists change their mindset and consider an associate as a potential partner rather than someone who is going to pass through in 12 months – that can be the game changer.

I challenge you to open your mind and blaze a new path for your private practice to survive, thrive, and stop the insanity of the revolving door of the dental associate and stave off the rapid growth of the DSO market. This new path must be intentional and include planning, action, and accountability for sustained success.

Transitional Partnership to Co-Ownership is not a new concept, but it is reimagined. The addition of a Transitional Partner gives you a chance to work together before becoming partners. The details of a future co-ownership, percentage of practice buy-in with a predetermined value, and length of trial period, are agreed upon prior to execution of the Transitional Partner agreement. Doing this avoids the ambiguity of a verbal agreement. Before beginning to recruit, it is wise to evaluate your practice and team readiness. Doing this ensures you the best opportunity for a successful long-term partnership.

Evaluate your practice readiness – Give a thorough and honest assessment of your practice readiness. You might need to improve production, systems, and protocols prior to adding an associate. You may need to engage outside professionals to help you with this assessment. (Download your free Practice Readiness Assessment at https://www.kathylamont.com/landing)

Once you know your practice is ready to add an associate, you will need to design an employee agreement that will attract and retain the best of the best candidates.

The Transitional Partnership Agreement – What is the Transitional Partnership Agreement? Simply put, it is a traditional associateship with the ability to buy into a partnership. This agreement offers a clear path to ownership. Most student dentists aspire to own a practice one day, so why not create a transitional ownership path? If a dentist chooses dentistry for its potential for entrepreneurship, then we know the outcome of the associate relationship will eventually end. If you are not offering a partial –full ownership path, you may lose your associate to buying a solo private practice or to a DSO that offers ownership equity without the burden of enormous debt.

You might be thinking, “I don’t want to give any equity in my business, and I don’t want a partner.” You’re not giving away anything, you will be selling a percentage of your practice and can retain majority ownership, leaving you to be the sole decision maker. You can sell any percentage you like, but 20% or more is the most effective at retaining your transitional partner.

The Transitional Partnership Model is attractive for many reasons, but the top reasons are to attract and retain the best of the best dentist partners, grow your practice, increase your income, and have the work-life balance you desire.

As with the associate dentist, partnerships can fail too. Most partnerships fail because both parties jump into a partnership too quickly. You can mitigate the risk of a partnership failing by detailed planning, practice readiness, and team engagement followed by a transitional partnership period before the co-ownership agreement is executed.

In 4 decades of being in the dental industry, it has become clear that the future of private practice is changing. We can no longer continue to do the same thing, expecting different results. That is the definition of insanity.

I know there is a better way, The Transitional Partnership is the future of private practice growth and succession. Remember that, planning, action, and accountability, trumps hope for the best every time!

Sources:

*Dentistry IQ, September 24, 2018, Quyen Pham, DDS

**American Student Dental Association, ADEA Survey of Dental School Seniors, 2019

***ADA, Health Policy Institute, March 2022

****ADA, Health Policy Institute, December 3, 2021

*****Dentistry IQ, May 2003, Flossie Reiser

Kathy Lamont, RDH, is the Practice Transformation Catalyst. She has almost 4 decades of dental industry experience. Her experience ranges from clinical dental hygiene for more than 20 years, 3M ESPE dental sales, Regional Director for a DSO, Director of Operations and Training for small dentist-owned groups, and most recently, launching her own dental coaching and consulting business.

www.kathylamont.com

To book a call with Kathy - www.kathylamont.com/bookacall