From interviews with young dentists seeking to purchase a dental practice, our company gathers considerable data related to associateships. Together with informal student surveys, these meetings suggest that one of the top three reasons for choosing dentistry as a career is the opportunity “to be my own boss.”
Unlike the previous generation of dentists, many of whom went directly into ownership (1980s and earlier), today’s graduates often choose to associate within an established practice for one to five years in order to learn the basics of a real-world dental practice. Some are granted an option to buy into these practices after a specified period of time. A number of associates tell me they agreed to this concept at the outset but had absolutely no intention of actually completing the buy-in process. Some admit they are simply continuing in the position until a better opportunity comes along and sadly, many principals are unaware of this situation.
A majority of buy-in scenarios will predictably end in failure. Why do so few of these transactions fail to materialize into the desired win-win partnership between principal and associate?
In most instances the parties end up going their separate ways, sometimes with excessive financial loss, a loss of professional respect and even the occasional lawsuit. I suggest there are three key reasons why most associate buy-in arrangements fail:
Principal dentists hire an associate for three main reasons:
Associates join a practice for three main reasons:
The two parties may not be forthright with each other from the start. The principal usually wants relief from a heavy workload, but he or she is not ready to part with control or ownership. The associate wants income and experience but is not ready to commit to an increased financial burden while paying off student debt. In addition, young dentists in the early stages of their careers often lack a clear vision of their professional future. Yet principals seem intent on offering them the “opportunity of a lifetime,” which can ignore the associate’s youthful ambitions. Associates seem intent on agreeing to the future buy-in scenario if only to appease the owner in order to get the position. Poor communication of true intentions is the number one reason the well-intended associate buy-in fails.
2. Equitable Allowances for Contribution
Principal dentists are proud and have invested many years of hard work, equity and time building the practice. When selling, they will naturally seek what they perceive as deserved value for these efforts. Associates are young, energetic and, given the opportunity to work, will usually make every effort to help a practice succeed. When price enters the discussion, the two parties typically hold opposing views about what the practice is worth. The principal wants full value, while the associate believes he or she has contributed to this value and feels entitled to a discount. Both parties may indeed have valid positions, but money is always a contentious topic. Many principals report being insulted with the associate’s initial price proposal, often to the point where they lose all desire to continue the negotiations. Associates believe the practice would be worth substantially less without their contribution. So who is right? The answer is perhaps both, but this process usually leads to failure. Price is a very subjective matter, and one that can ruin the otherwise good intentions of both principal and associate. My advice is to have the practice appraised before the associate begins, and then re-appraised at the time of a possible buy-in. Associates need to respect the years of work invested by the principal and principals need to respect the efforts made by the associate to keep the practice growing.
Sometimes the principal is more eager than the associate (and vice versa) for a major career change. Many principals, who were initially simply looking for relief suddenly feel pressured by the associate to sell the practice (or a share of it) before they are truly ready to begin the process of letting go. This poor timing could have been prevented had the intentions of both parties been properly communicated at the commencement of the relationship. These opposing timelines often portend failure. It’s not that they don’t get along – most seem to work together fine – but it appears that one is inadvertently pushing the other to act prematurely.
I have ten associates, all of whom are wonderful, highly productive individuals. They enjoy freedom from ownership while having the luxury of not investing in or managing the business. On the other hand, I enjoy more time off, reduced client loads and some profit from their efforts. If we ever began the process of an associate buy-in, we would first consider the three main reasons for failure: communication, contribution and timing.
What have you told your principal dentist? What have you told your associate dentists? Are these your ‘true’ intentions?
Ontario Dentist – April 2005