If you’ve spent years building your dental practice, you may be considering how to make a successful exit. DSOs and private equity groups have dramatically altered the landscape and created new opportunities and pitfalls to navigate. Solo practitioner ownership has declined over the past ten years, but dentists may still want to add an associate to their practices. Associates can support business growth by increasing productivity and allowing for expanded hours and services under one roof.
When you decide to sell your dental practice, an associate may also turn into a future buyer, but dentists need a thorough understanding of the keys to successful associateships. While associate buy-ins are a proven transition strategy, success depends on many factors, including:
- Good communication between dentists: Transparent dialogue is vital for building trust and maintaining a solid relationship.
- The right fit between both parties:Dentists should share similar values and goals as the practice and integrate with the existing team.
- A shared vision of the practice’s future: A shared vision should include a strategic plan for growth, staffing, culture, and more.
- Defined roles and responsibilities: Each associate should have clearly defined roles and responsibilities, including patient care, administrative tasks, and financial management.
- Clear compensation agreement: To avoid misunderstandings or resentment, the compensation must be transparent and documented.
- A focus on patient care: All providers should work together to deliver high-quality care and exceptional service.
A successful dental associateship depends on a shared commitment to collaboration, communication, and mutual respect. Approaching an associateship like any other serious relationship gives it the best chance for success.
How Does An Associate Buy-In Work?
In this agreement, a dentist incrementally turns the practice over to the associate before retiring. The timeframe is clear to both parties, and the seller receives payment from the buyer when the deal closes. Associate buy-ins are a traditional transition model that most dentists understand, but it’s become less common in recent years.
There are three structures most commonly used for this type of transition:
- Incremental Buy-In: In this gradual approach, the associate dentist takes ownership over time. For example, the associate might start with a minority fraction and gradually increase their stake over several years. This structure allows the seller to transition ownership and progressively transfer responsibility to the new owner.
- Lump Sum Purchase: Sometimes, the associate dentist purchases the practice with a lump sum payment. The purchase price is based on the current value of the practice and usually involves bank financing. If the associate has been working in the practice and helped increase profitability, the valuation may be different than if the seller sold to another buyer.
- Combination of Both: The associate buy-in can also involve a mix of incremental and lump sum purchases. For example, the associate might initially purchase a small percentage of ownership with the option to buy additional shares over time. This flexible approach to ownership transfer can be customized to fit the situation and goals of both dentists.
Ultimately, the best agreement for an associate buy-in depends on the goals of the seller and the associate dentist. One misstep can derail a potential sale, and the final arrangement is a thoughtful mix of both visions for the future.
Here’s an example of how an associate buy-in may work. Dr. G had a busy general practice producing $1.5 million annually. After thoroughly reviewing the business and his goals, he hired a young associate. He wanted to retire within five years but also looked forward to mentoring a younger dentist. It took over a year to find the right associate, but clear communication aligned their goals and led to an associate buy-in agreement. Together, they increased the value of the practice, and both benefited from the growth and enjoyed a smooth transition. This win-win approach is our goal with well-designed associate buy-in arrangements.
How Do I Design A Win-Win Dental Associate Buy-In?
If you’re considering your options for a successful exit, an associate buy-in may offer one strategy. But be sure to define any verbal terms in writing, including a purchase contract, before the associate starts at your practice. For example, a contract may outline a time frame, specific milestones, valuation method, and sale terms.
Some dentists end up disappointed because they expect an associate to become a buyer. At DDSmatch, we specialize in the best scenario for you and start with a thorough understanding of your goals and vision for the future. We can help you weigh different options and work through the steps that lead to a successful transition. Reach out today and see what options make the most sense for your future.
