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Dental Partnerships
Dental practice partnerships are gaining popularity within the dental industry. What exactly is a “partnership”? For purposes of this article, the term “partnership” does not refer to any legal structure, but rather to a business arrangement and relationship aligning the professional needs and goals of two or more parties. As dental partnerships become more common, we must remain focused on the intent of alliances, which is to create, maintain, and support a mutually rewarding professional relationship between all parties, as well as to outline potential exit strategies during or upon completion of the professional relationship. There are many reasons dentists opt to work together, but regardless of the reason, you need to understand the considerations for a partnership, your options for a partnership, and the processes involved to achieve success.
Legacy Practice Transitions understands that mutual commitment and trust between all parties is the bedrock of a successful, profitable, and long-lasting partnership. Working with us to create a thorough and comprehensive dental partnership agreement will be much stronger than one without. We help prepare you for future issues and make sure that all partners involved have the same expectations on contributions and percentage ownership. Talk to us today to help create a dental practice partnership that is fulfilling for each person.
Considerations for a Dental Partnership
All business partnerships should start with a needs determination. This must be done immediately to identify if the present opportunity complements the needs of both future partners. If the determination of needs does not align for both parties, then the partnership should probably not occur.
A professional partnership is similar to a marriage. The potential partners must be aligned on multiple levels and comprehensive due diligence must be done for everyone to achieve success. Here are some basic questions that should be asked and thoroughly discussed as preliminary steps in the process:
Financial Considerations
Does this opportunity satisfy the financial needs of all potential partners? For financial considerations, it must be determined that the practice can sustain two or more doctors. Do all parties desire to grow the practice, maintain the practice, or add additional future partners?
What is each partner’s capital contribution and how will it determine the percentage of ownership? Will the new doctor use pre-tax or after-tax dollars to purchase into the practice? Will the host/seller receive monies taxed as capital gains or ordinary income?
Managerial Control
An important aspect of creating a partnership correctly is to have a clear understanding of the managerial roles each partner will oversee within the practice. Can the Host/Seller give up or share control in this point of their career? Who is delegated to approve decisions that have a substantial financial impact on the practice? Will they share all control equally by default? What stipulations will be woven into the dental partnership agreement to determine who makes decisions? Understanding the control or management desires of all parties involved and the processes for each decision within a partnership will help to avoid potential pitfalls.
Partnerships require effort and each owner must contribute in some capacity that suites their unique abilities and personality.
Timeline Considerations and Exit Strategies
It is not uncommon for partnerships to have age gaps between partners. In fact, it’s one of the designed benefits of certain partnership structures. It’s very common for an older dentist to partner with a new dentist to create a dental partnership as a natural career phase of entering and exiting a practice. This style of succession plan can be financially and professionally rewarding.
Options for Dental Partnerships
Legacy Practice Transitions has a successful history of dental practice transitions and dental partnership agreement structures. This experience has given us the opportunity to guide clients through the most comprehensive and fair business arrangements between two or more parties. Using creativity and ingenuity, we can create truly unique and beneficial programs for all owners involved.
There are no two identical transitions. The structure of one dental partnership may not address and meet the needs of another partnership. Discussing the different options for a protective partnership will allow you to select the program that best suits your needs. Although there are many partnership options, we frequently encounter Incremental Practice Sales (IPS), and Shareholders’ Agreements (SHA) as two common approaches used in a partnership. Each program is uniquely structured and tailored to the specific goals and needs of the partners. Legacy can walk you through the details, benefits, and strategies of each program.
Some dental partnerships will be structured utilizing equity models based on either buy-in or earn-in. We find that a practical and equitable solution could be a combination of both “buy-in” and “earn-in” models. The associate could earn “credits” through their own production contribution to the practice, thereby reducing the amount needed to buy in. The profits generated by the associate’s added production would compensate the Host for the equity to be earned by the associate.
Questions We Ask Buyers and Sellers Exploring Dental Partnerships Options
- What was the purchase price based upon?
- Will the buy-in of future portions be based on the future value or present value?
- How would the new patients be assigned?
- How are the management responsibilities determined within the operating or management agreement?
- Would expenses be paid according to each party’s production, or would they be split 50-50 regardless of production?
- Is there an option or obligation for one or more partners to acquire the remaining ownership at a future date?
- How many years do both parties intend on working?
- Provider, management, termination, and redemption considerations must be included in the agreements.
- Would management fees be considered?
- What considerations have been made on the front end that will impact the exit strategy for all parties?
- How will ownership of the real estate be handled?
- What structure will be most beneficial from a tax perspective?
- Will the agreement include production requirements to qualify for partner distributions?
Why Work with Legacy Practice Transitions On Your Dental Practice Partnership
Whether you are considering a partnership for your practice or thinking you may want to join one in the future, aligning with a group that understands the necessary components to build a solid foundation for a successful partnership is mandatory. Coming together through a needs determination and not simple convenience allows for the benefits of a partnership to be revealed. Without going through proper due diligence and professional guidance, both dentists could face legal and financial headaches along with the stress of running a business with the wrong partner.
Legacy Practice Transitions has successfully aligned partners and written custom contracts that address the present business structure and lay a roadmap for how future events will be handled. After all, ambiguity is not benign! The wisdom and knowledge that we have are invaluable for such a deep and long-lasting endeavor. We are seeing more and more partnerships because of the many benefits they offer. Legacy understands the benefits, but also the risk involved if not done properly. Talk to Legacy Practice today to find a dental partner or to create a partnership agreement that can withstand the test of time.
