March 29, 2012

Dental Partnerships – A Whole Other Ballgame

Filed under: Uncategorized — Mayer A. Levitt, DMD @ 7:46 pm

Over a three month period beginning July 2011, I wrote a series of seven posts on how to avoid the common pitfalls of dental practice transitions.  My comments were focused on  the sale or purchase of an existing practice resulting in a merged larger practice still with one owner. In the general scheme of things, this is  relatively uncomplicated.

The most difficult and complex practice transition is an equity partnership. In the typical situation, an associate who has been working as an employee for a number of years in a dental practice is offered the opportunity to buy a percentage of the business and become an owner. The sale is designed as an exit strategy for the senior doctor who will be retiring from clinical practice – probably in five to seven years.

The complexity of a dental partnership can perhaps be measured by the length of the legal agreement, often 90 to 100 pages. Contrast that to an outright sale of a practice where the legal documentation of the purchase is usually 10 to 15 pages.  There are significant risks to both parties when entering into a partnership. From the perspective of the seller, some  questions might be:

  1. How am I going to handle losing total control (power) over decision making?
  2. What will happen to my income stream?
  3. Am I giving away the store?

The buyer will also have questions:

  1. Will I be able to afford all this debt?
  2. Am I paying too much?
  3. I know that I am an equal partner, but will I ever be able to truly exert my influence?

You are going to the altar on this! It is a marriage without the romantic benefits, and in my experience I have observed that a dental partnership has about the same chance of success as a marriage. That being said, most marriages that don’t last certainly don’t fail in the first few years. So with hard work on everyone’s part, there is a reasonable chance to have the partnership survive until the senior doctor retires.

Contrary to my normal optimistic approach to life – and since I have seen so many unfortunate situations – and since partnerships don’t always turn out to be long term success stories – I have to force myself to use restraint when advising clients in this arena. The challenge is to design what essentially is a pre-nup agreement that tries to anticipate every possible contingency in the event that things don’t go smoothly and blissfully or as planned.

By definition, a dental partnership between a senior doctor and a younger “associate to become partner” is full of built – in inherent conflicts of interests. Recognizing this dynamic makes it all the more important that the prospective partners at least share basic core values like personality, consideration for others, and an ability to communicate well. Without that to start, all of the thoughtful contingency planning in the world will not insure success.

In my opinion, success in life is always about having reasonable expectations. I would suggest that you will be disappointed if you think your dental partner is going to be your best friend and golfing buddy. But if at the end of the day, you and your partner respect each other and can co-exist in a peaceful professional relationship, then that would meet my definition of success. Anything more than that would be icing on the cake.

Over the next few months, I plan to document and discuss in detail a number of positive suggestions and strategies to implement when designing a dental partnership.

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