January 1, 2014
by Richard Kramer, DDS, MScD, FCDSBC
Whether you’re a solo practitioner, or starting or joining a group practice, you must know where you are heading and what the end game is. Everything has a beginning and an end. If you visualize how you want your dental practice to end, shaping the journey is more likely. Practice transitioning includes many phases from commencement, to growth and finally, to exit strategies. Your professional life is a journey. Enjoy the ride.
It has been my lifetime privilege to start a solo practice in Vancouver and grow it into a large group. Five years after starting my practice, I incorporated my first partner. At that time, it was essential to formulate agreements that would establish valuation guidelines and a practice philosophy. Guidelines for entry and exit were specific and provided the basis for long term growth, enabling me to successfully conduct negotiations with prospective associates and eventually grow our group to 10 practitioners.
Commence setting goals early in your career as it offers more opportunities to achieve success. It is often difficult for new dentists to decide their goals. The first place to start would be with established colleagues. You can easily ask questions, observe their practices and thus, begin your plan to achievement.
Should you grow a small or large practice? This is a personal decision you need to know yourself and where your comfort zone lies. To reach this decision, it may help to carefully observe other dental practices, their day-to-day interactions with patients, staff and the energy in the office. Such observations may allow you to make better choices early in your career. If a large practice is your goal, then grow it incrementally to increase stability.
Life is unpredictable. Having a quality career plan may help you and your family deal with unexpected setbacks. During my professional life, I have sadly observed several seemingly healthy dentists develop career ending physical issues. Having a successful exit strategy properly documented and planned from the beginning can save your family from a serious burden at the worst possible time.
The question is: “Do YOU have a growth or transition plan in place, at this moment in time?”
1). Solo practitioner commencing one’s own practice.
2). Solo practitioner purchasing an existing practice.
3). Solo practitioner employing associates but not partners.
4). Solo practitioner developing a group of permanent partners.
5). Joining an existing group practice.
Advantages to a group practice are many.
1. There is a reduction of fixed costs, as more partners are fully using the facility.
2. Weekend appointments are now possible and become highly sought after.
3. The group may be branded which increases marketing capabilities more extensively than a single practitioner can achieve.
4. Administrative responsibilities can be delegated among the group.
5. Camaraderie and knowledge sharing that occur.
6. Once the proper agreements are in place, security for family is now possible. Vacation time becomes more flexible as there are more partners to alternate holiday plans.
7. Less emergency calls for each individual dentist.
Disadvantages to joining a group practice have to be recognized as well.
1. There is less independence, since an increased number of colleagues require consideration.
2. There is less ability to exercise ones own will and philosophy.
3. Some individuals are better suited to solo practice.
ADVISORS FOR PRACTICE TRANSITION ALTERNATIVES
In order to be successful, you must select a banking partner to provide funding for growth, expansion and buy-ins. Early in your career, develop a comprehensive business plan that demonstrates future growth potential and achievable goals. If you accomplish these goals, greater leverage will be provided in future negotiations.
Deciding which financial partner to use demands critical consideration in any future planning. One thing for sure is that you must choose a banking partner. The following are some possibilities for obtaining the dollars necessary to finance your practice:
1. A parent who is willing to fund your new practice.
2. A solo practitioner, if you are purchasing their dental practice.
3. A group practice whose dental practitioners finance your buy in.
4. A bank provides financing for the majority of dental practitioners.
The question is, “Who do we turn to for advice concerning practice transitions?” Generally there are four possible alternatives. Accountants and lawyers are usually the professionals we turn to first. You must consider that they might be well intended, but not dental savvy. Some accountants and lawyers aren’t experienced with dental practices.
The third category would be Practice Transition Companies that handle the sale of dental practices. If their only fee is a result of a completed sale, then their objectivity may be questioned. The fourth category is Independent Consultants. These professionals are dental practice experts that are few in number and work strictly on a fee for service basis. The benefit of these consultants is that they can provide unbiased advice.
The dentist must ask themself the following questions:
Does your advisor recognize the unique qualities of your practice or are they simply adopting a “cookie cutter” approach?
Is the advisor truly unbiased?
THE PROFESSIONAL LIFE OF THREE DENTISTS
The stages that dentists pass through on their professional journey is described in the following story:
Stage One–”Getting Started”
Meet Dr. Fresh. Dr. Fresh can be described as excited, anxious, a bit fearful and ever so eager to learn. Dr. Fresh is the dentist just out of dental school. He/She is shiny new, vulnerable and ready to acquire a practice. Dr. Fresh has several options to consider, such as building a practice from scratch, purchasing an existing practice or joining a dental group.
Stage Two–”Practice Building”
Dr. Fresh is now focused on building and growing a dental practice.
Meet Dr. Prime. This is the dentist who is cruising along in an established practice. Life is good and very busy. He/She is successful, involved in dental organizations, attends conventions and generally enjoying an active career. It is quite possible that complacency has evolved. The thought of “what’s next” is most likely avoided by Dr. Prime.
Meet Dr. Golden, who is suddenly getting tired and doesn’t want to work any harder. The practice may have stopped accepting new patients and as a result is shrinking. The patients and equipment are aged and Dr. Golden’s practice has become outdated. Dr. Golden wants to take more time off, but who is going to look after patients and cover the overhead?
Stage Five–”The Dilemma”
The days ahead are unsure for Dr. Golden. What will the future bring? Fewer working days would be preferred. An associate would be nice, however neither the patient load or the physical space can support another dentist. The patient profile is aging and referral sources are drying up. The lack of preparation has finally caught up with Dr. Golden. Options are limited, but the income and desire to continue working are still valuable.
Stage Six–”The Consequence”
of planning has become a reality. Dr. Golden would like to sell the practice, but attracting buyers for a life’s professional effort is very challenging. The equipment is old, as is the patient profile. Annual revenues have diminished, as has the value of the practice. It is very disappointing for Dr. Golden, since it represents a lifetime accomplishment. Having waited too long, the future has arrived more quickly than Dr. Golden has expected and options are limited.
THE OPTIMUM END GAME PLAN
The best opportunity for creating a long-term plan is while practicing as Dr. Fresh. The next best alternative to develop a
comprehensive long-term strategy is while practicing as Dr. Prime. At this point there are still many options available. However, as time passes, Dr. Prime’s options diminish substantially. By not having planned ahead, Dr. Golden has now been deprived of various opportunities to exit with dignity after a long successful career.
Dr. Fresh probably never thought past the goal of becoming Dr. Prime, and hadn’t considered the circumstances that Dr. Golden’s era would bring. Dr. Prime was likely too busy in the present or too complacent to worry about the later stages of Dr. Golden’s career.
BUYING A DENTAL PRACTICE – DR FRESH’S OPTIMUM GAME PLAN
This is completely business and NOT PERSONAL! Dr. Fresh is questioning, excited and nervous. He/She may be vulnerable due to the fact that they are inexperienced and perhaps somewhat cocky. They most likely feel that it’s easy to build a dental practice. Does Dr. Fresh have a plan or even know what he/she is looking for in a practice? Important considerations for Dr. Fresh would be: the location of the practice, the quality of leaseholds and equipment and the value of the practice’s goodwill. A major question to consider is: “Will the patients remain with the practice?”
When evaluating the practice, the advisors consider if they have sufficient knowledge to advise if it’s a “good deal”. What are their motives? Is their advice unbiased or do they profit from the sale?
SELLING A DENTAL PRACTICE – DR. GOLDEN’S EXIT PLAN
This process is DEFINITELY PERSONAL! A life’s work and level of achievement are being assessed, critiqued and evaluated by others. Dr. Golden is feeling quite vulnerable and alone in this undertaking. We often become what we’ve done and therefore our persona is integrated with our career. Dr. Golden’s emotions may include resignation, sadness, desperation and/or panic. Does he/she really know what’s next? For Dr. Golden, this process isn’t “cookie cutter”.
“YOUR OPTIMUM PLAN” – THE DEAL
To achieve the optimum plan, set goals first, not dollars. Choose advisors carefully and place trust in them. The plan must work for both parties therefore find the middle ground, and then negotiate. Consider using an independent unbiased negotiator to facilitate communication between the parties.
HINTS FOR THE SELLER
Remember how vulnerable you felt when starting practice? Young dentists often have limited resources, and having sensitivity to this issue is important. Generosity goes a long way in reaching a favorable sale. You as the seller are negotiating “Plan A”, but do you have a “Plan B,” as a backup?
Whether you are going to stay-on and work or retire must be considered. You also may want to consider carrying finances with appropriate interest as an alternative to investing your money elsewhere?
HINTS FOR THE BUYER
Remember you will be there soon enough. The retiring practitioner may have financial concerns that factor into negotiations, so think long-term and try to be flexible. Just remember, this sale represents the seller’s life and the sale of the practice is PERSONAL to the seller.
It has been my privilege over the years to assist many of my colleagues in practice matters. Professionals in medicine, law and dentistry have sought advice about practice growth and transitional strategies.
In addition within our own dental group, I have recruited, interviewed and negotiated with new associates; ultimately leading to partnerships. The success rate has been remarkable and very gratifying.
As the architect of our legal agreements, it was critical that all contract guidelines were definitive, clear and fair. They include both entry and exit strategies. The principles I introduced 35 years ago remain the basis of our practice today.
Here are some basic principles I have always adhered to in my negotiations and should be followed to achieve maximum results:
1. Some individuals are best suited to a solo practice while others are appropriate for a group concept.
2. Encourage a young professional to seriously consider their future. This includes their goals in life as well as dental practice.
3. Always be generous since these young individuals will either be partners or colleagues. Ultimately they will respect the manner in with the negotiations were conducted.
4. Deals may need to vary even at the same price point, depending upon the needs of the purchaser and seller.
In consultations I have provided for professionals outside our group practice, it has always been to my advantage to be unbiased. My strategy is always to explore the common goals of the individuals and then to strive to eliminate obstacles. When both parties stand to benefit from an agreement, success can usually be achieved.
Human nature often makes it difficult for principals to come to an agreement directly. This is because emotions often enter the discussions. Sometimes a third party will be more successful by finding common ground and completing the deal.
• Develop your own goals
• Adapt a professional strategy
• Think long term OH
Dr. Richard Kramer is the senior member of Pediatric Dental Group in Vancouver. His practice has grown from a solo practitioner to a group of ten. Having formulated partnership agreements, he then conducted negotiations with all but one associate. A thoughtful approach to the structures of these agreements and his negotiating techniques allowed for successful results. He has assisted many colleagues in their practice growth and transitions. There is much to learn from his entry and exit strategies. Dr. Kramer currently is a practice consultant and may be reached as follows: email@example.com.
Oral Health welomes this original article.