The Advantages of Dental Associateships and Buy-Ins
courtesy of DDSmatch Southwest
It’s a great time to be a dentist that owns their own practice. Whether you are currently in a dental associateship looking to expand your interest in a practice, or an owner looking to sell or expand, a buy-in—also known as a minority interest transaction—can work to the advantage of both the buyer and the seller.
From the point of view of the owner-dentist, a dental associate buy-in can be a good plan for a dental practice transition. Rather than just bringing on an employee, a dental associate becomes a partial owner. The benefit here is that the junior dentist has a greater investment (both literally and figuratively) in the practice. They are more likely to stay with the practice and work harder for its growth and success. By having more at stake, they will have more of a long term view. Also, when it comes time for the senior dentist to retire, there is already someone settled in the practice, who knows the staff, the patients, and the community. It makes for a smoother, simpler transition. By going through the process of hiring an associate and allowing them to buy-in, you are essentially hand-picking your successor.
Additionally, by creating a partnership agreement between the senior and junior dentist, the senior dentist is assured of the continuity of the practice in the event of their death or disability. Partnership agreements typically require the surviving partner to buy-out the other, meaning that the practice will continue. Without such an arrangement, it’s possible that the practice—something a doctor has worked to build over many years—may end up closing its doors without any of its value being transferred to the dentist’s family.
For the associate, a buy-in can be a tremendous opportunity. They get to share in the benefits of practice ownership, not just be a worker that clocks in and out and collects a paycheck. They get to learn how to manage and grow a practice, but do so under the tutelage of an experienced practitioner and business owner. It provides the opportunity to learn real world skills and business acumen that isn’t taught in dental school. Essentially, the associate gets to learn how to own a practice without having to take on the full risk of ownership.
How it Works
The dental associateship buy-in timeline usually takes place in two parts. First, the associate would buy a minority interest in the practice. 10-20% is a good starting point and is typical for these arrangements. A smaller percentage is beneficial for these types of partnerships because this will be a trial period for both parties. If it turns out to not work for whatever reason, it will be a lot easier to end a partnership that only involves 10-20% rather than half, most, or all of the practice.
The second part, then, is the complete buyout of the senior dentist’s remaining interest. This would probably occur when the senior dentist decides it’s time to retire, but, as referred to above, could be accelerated by the death or disability of the senior dentist. Although such instances are not common, its best for both parties to carefully consider what they would want to happen in such circumstances before finalizing a buy-in agreement, just to be sure this is a path they want to go down together.
After the junior dentist has purchased an initial stake in the practice, generally staff and patients take that doctor’s role more seriously than if they were simply an employee for hire. Although the junior partner is not on par with the senior partner, there is a clear difference when they have bought into the practice (literally and figuratively). Staff will view them differently, especially knowing that the junior will become senior one day. And when that day comes, it can be a more seamless transition than if a stranger is brought in one day and introduced as the new boss. The associate will have had ample time to earn the confidence of the staff and patients.
The Best Partnerships are True Partnerships
There is no doubt that a dental associateship and buy-in is a serious commitment by both parties. It requires mutual respect, open communication, and a solid legal agreement. The most heavily negotiated part of buy-in is not the purchase agreement, but, rather, the partnership agreement. Both parties must be clear on their expectations and those expectations must be aligned for it to work.
These documents can be very detailed and technical. Whichever side you are on, you will need an experienced attorney to negotiate on your behalf and provide expert counsel on such things as voting rights, management responsibilities, CEO compensation, withdrawal provisions, personal guaranty requirements, matters requiring unanimous consent, deadlock provisions, drag-along rights, required chairside responsibilities, and several other issues.
You should be carefully considering each of these issues, along with the others raised by your attorney. And don’t just considering them in abstract, but within the context of a very real long-term working relationship that you are taking on. Unfortunately, not all of these partnerships work out. Most do, however, you will be well served by not going in blindly or with rose-colored glasses. As with any relationship, business or personal, If you proceed with good faith and your eyes open, you greatly increase your chances for success.
DDSmatch Can Help You with Right Dental Associateships
DDSmatch has been successfully connecting the dentist’s present with their future for ten years. Recently, we’ve partnered with ZipRecruiter to leverage their proven employment solutions to expand your options, along with the continued support of our team of professionals, and the thousands of dental associateship candidates on our website.