Adding Associates - Issues To Consider

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Specializing in Dental Practice Sales, Transitions, and Appraisals

George D. Stollings and Associates, Inc.

Adding An Associate

ISSUES TO CONSIDER

An Associate Addition Must Be Structured With Careful Consideration Given To The Answers To These Two Important Questions:

(1) How much longer does the practice owner intend to practice before retiring; and,

(2) At what point, between now and retirement, is the practice owner willing to begin to work less, and accept earning less income?

A. If practice owner is within 1 to 7 years of his / her future practice sale & retirement:

¨ In most cases (not all) one should not consider having the associate become a partner.

¨ There are less complex ways to have the associate purchase 100% ownership of the practice, at the appropriate time.

¨ These alternative approaches may increase the chances for a successful sale and transition, while eliminating many of the pitfalls of partnerships for both the practice owner and the associate. (Note: See and read the “1—5 Year Retirement Sale Planning” section of this website.)

The practice owner’s ongoing income needs will determine how best to structure the transition and eventual sale. There are options that may: (i) allow the owner to maintain or increase income between now and retirement; (ii) maintain income for several years before working less and reducing income; or, (iii) begin to work less now, and realize less income now, but prevent the value of the practice from declining as he / she does so.

Caution: Many associate additions begin with only an associate employment agreement, and with no firm plan backed by contractual agreements that details the parties’ agreements on all aspects of the future sale and ownership transitions. This is a primary cause of associate addition transition plan failures, and in many cases leads to owners and associates investing several years of their careers, only to then find out that they cannot reach agreement on one or more important details of the sales and transitions. This leads to associates having to then re-start their careers elsewhere, and to owners having to begin again in their search for their practice buyers. The results are a set-back for both parties.

Our Consultation & Sale / Transition Planning Service Can Help: Contact us to explore multiple approaches for your future sale, and determine which best matches the career goals and financial objectives of both you and your associate.

Not Sure If Your Practice Can Support An Associate? Go to the “Forms” section of this web-site, open the form labeled “Associate Addition Evaluation Questions”. Complete it and return it to us. Dr. Stollings will contact you, giving you his insights as to the capability of your practice to profitably support an associate.

B. If practice owner will practice more than 7 years:

One can consider partnership formation, but should also examine and compare alternatives, including among others the Staged Equity Plan or Percentage Buy-out, either leading to formation of an expense sharing Solo-Owner Group Practice.