Selecting the Ideal Associateship
Eugene W. Heller, DDS
Fact: An associateship after dental school is a great way to begin practice.
Fact: There are more associateship opportunities available today than ever before.
Fact: The chances of a successful associateship can be greatly enhanced.
Fact: Many associateship failures can be easily avoided.
The intent of this discussion is to lead the reader through the associateship opportunity evaluation process. The goal is to present the reader with a list of identifiable questions and issues whose answers and solutions will result in the highest probability of establishing and completing a mutually beneficial and rewarding associateship.
Defining the Successful Associateship
Before beginning the evaluation process we must define our intended end point, i.e., what is a “successful associateship.” Our definition is quite simple. An associateship has been successful if it meets the following criteria:
- The associateship has met the goals and expectations of the associate AND
- The associateship has met the goals and expectations of the employer.
Therefore, the associate’s starting point in setting up a successful associateship requires a determination of what the associate’s intended goals and expectations are. Then the associate must locate a practice opportunity whose goals are consistent with his or her own goals.
Determining Your Goals and Expectations
First, a couple of additional facts.
Fact 1:The most successful people in any field, from a financial, personal, and professional satisfaction standpoint, have written goals.
Fact 2:Less than 5% of all professionals have written goals. Or, to paraphrase a concept from Alice in Wonderland, “If you don’t know where you want to go, any road will get you there.” Setting your goals and expectations need not be a major task. But not doing so prior to evaluating an associateship is an invitation to failure.
You will need two sets of goals, one professional and one personal. Each set shouldbe split into short, intermediate, and long-term goals. Typically they cover two-year, five-year and ten-year periods.
For the purposes of this discussion, the personal goal discussion will be limited to where you want to live. You (and your significant other, if they exist) must both be happy. Your short-term location goal can be compromised if it is temporary. But if you are considering an associateship leading to a buy-in/buy-out, this will automatically limit your opportunity choices to where you are willing to live long term.
The question requiring an answer when setting this goal is, “Will this community meet my personal, social, recreational, career and professional needs as well as those of my spouse and family?” This most important “non-dental” goal is typically the first consideration in evaluating an associateship opportunity.
Setting Professional Goals
Answering a few questions for yourself regarding your reason for seeking an associateship will aid your determination of your short-term professional goals. There is no right or wrong answer to these questions. However, the answers will help you evaluate opportunities offered and your answers should be clearly conveyed to your prospective employer as an aid in determining compatibility.
Is your desired associateship intended to be short term because a change in your currently available desired location is imminent and/or you are uncertain about the long-term desirability of this location? Is your desire for an associateship based purely upon immediate financial needs, i.e., to earn money for school-related debt, personal living expenses, etc.?
Do you desire an associateship to gain/enhance your clinical experience only, but future ownership is not a concern? This is best classified as an on-the-job private general practice residency. This type of position requires potential employers who have no desire or intent to sell an equity position in their practice, but have far more patients than they can handle, so they hire associates every couple of years. Many larger clinics and the new dental practice management companies are always looking for associates, but equity positions are not available.
Is one of the purposes of your associateship to gain experience “managing and operating” a dental business? While this type of associateship position is closely related to the “clinical only” type position, it will be very important to discuss this goal with your prospective employer to see how he/she intends to convey management and operations information to you. If the employer is a “control freak,” there is a good chance they will be unwilling to share in this area. The reverse is true in a practice where the employer delegates everything legally possible. Is your intent to only accept an associateship position, which will lead to an ownership position? Do you want to be a sole proprietor or a partner? The answer, of course, will direct which type of practice you apply to. The key is to carefully evaluate the opportunity as to the likelihood that ownership will indeed be offered at the conclusion of the associateship.
Rating The Purpose Of Your Associateship - Rate in order of priority with “1” being the highest.
___ Interim Position-Location Change Probable
___ Immediate Income-No Ownership Interest Intended
___ Gain Clinical Experience Prior to Ownership
___ Gain Management/Business Experience Prior to Ownership
___ First Step to a Total Purchase
___ First Step to Partnership
Assessing the Practice
When considering the practice itself, there are several considerations. Many associateships are short lived simply because the practice could not support the associate. The most important number in a dental practice is the active patient count. The number of different individuals seen during the prior twenty-four months (considered “active patients”) determines production capabilities, staffing needs, and the ability of the practice to support more than one doctor.
It is surprising how many dentists considering taking on their first associate do not know this number. It can be easily calculated by multiplying the number of recall patients seen during a six-month period by 1.5. At an average annual patient production value of $300, each $10,000 of proposed associate salary requires 100 patients. Therefore, if the associate is offered $60,000 in salary, they will need access to 600 patients. In a practice having only 1,000 patients, unless the senior doctor is planning on severely restricting their future number of days per week of production, the practice will be unable to support a full-time associate in addition to the senior doctor maintaining their current schedule.
The second most important number is the average monthly new patient flow. Fifteen to twenty-five new patients per month per doctor are required. A practice generating a minimum of 30 new patients per month can support two full-time dentists providing the prior active patient count numbers are also supporting this new patient flow.
If the practice is generating less than this number, where will the new patients come from? Does the employing doctor have a marketing plan, intend to expand through participation in PPO, HMO, or other discounted fee programs, or is the new associate expected to generate their own new patient flow? If the latter is the case, the proposed associateship will be severely compromised.
Assessing the Employer
Much of the associateship success depends on the compatibility of personalities, practice philosophies, and clinical compatibilities. Infrequent staff turnover says a lot about the temperament and personality of the employer. Unfortunately, so does high staff turnover. Even more importantly, has a prior associate recently left the practice? If this is the case, it is very important to determine why that associate left the practice. It would be appropriate to request the employer’s permission to contact that associate as part of the evaluation process in an effort to determine what type of an employer you are considering.
Commitment to continuing education and/or support for the new associate’s continuing education needs says a lot about the employer’s clinical viewpoints. What courses has the employer participated in during the past three years? What future courses does the employer plan to participate in? Will the employer allow time off and possibly supply financial support for the associate’s continuing education?
How willing is the prospective employer to share practice numbers with the associate? Will they allow the associate participate in management and business operations? If the associateship is intended to end in a partnership or buy-out, is the employer willing to set the purchase price at the beginning of the associateship? If not, there is only a one-in-ten chance the buy-in/buy-out will occur. If the employer is unwilling to discuss and agree to the price at the onset, there is little chance that an agreement will be reached two-to-three years into the associateship.
What clinical procedures does the employer like, refer out, and/or expect you to do? Are you going to be expected to do the less desired, less productive procedures such as treating children, amalgams/composites only, and your own hygiene? Or will you have the opportunity to do and learn the more productive and profitable procedures such as crown and bridge and cosmetic dentistry? Does the doctor perform specialty procedures such as ortho or TMJ which you might have an interest in? As an aid in your development, will the employer consider allowing you to use the practice’s best chair-side assistant for the first three-to-six months?
Assessing the Offer
We typically see a guaranteed minimum salary of $4,000 to $6,000 per month for the first-six-to twelve months of employment for a recent graduate. It is the employer’s responsibility during these early months to assign enough work to justify the salary. After this initial six-to-twelve month period, a conversion to a percentage of collections (typically 28%-35% dependent upon who pays the lab bills) is the standard. The most critical aspect here is that the offered compensation will meet the financial needs of the associate.
We sometimes encounter employers who insist on treating the new doctor, for tax purposes, as an independent contractor. According to the current IRS tests for independent contractor status, very few associates qualify. If this is being suggested, you should receive a higher compensation rate to offset the additional Medicare and Social Security taxes you will be required to pay. This provision, if being offered, should be carefully discussed with your tax advisor.
Other offered financial perks are variable. They range from nothing to allocations for continuing education, health insurance, malpractice insurance, and retirement funding. Typically, one week of vacation during the initial six months (paid or unpaid) is allowed and a second week (if you are on a percentage of collections, the second week will be at your expense) is normal. Time off for continuing education, paid or unpaid, should be discussed.
The employment agreement should be in writing and executed at or within 90 days of the start of employment. Failure to have this written agreement reduces your chances of success by 50%. In addition to compensation, the agreement should state the term or period of planned employment, grounds for termination, and some type of non-compete/non-solicitation of patients and staff provision. This last item is needed by the employer to ensure that you do not take half of his/her patients and staff after one-to-two years of employment to set up an area competing practice after he/she has spent ten-to-twenty years developing this base.
Finally, if a planned buy-in/buy-out is being offered, the terms should also be in writing, generally in a separate “Letter of Intent.” This Letter of Intent should contain as many details as possible regarding the future practice ownership transfer. It should also include the intended payment mechanism. If this is to be a partnership, typically a small cash down payment will be required at the time of buy-in, with the seller providing the balance of the financing. If it will be a total buy-out, is the seller willing to carry some or all of the financing?
The Letter of Intent should also be available at or within three months of the onset of employment. Failure to have a “written” Letter of Intent again severely decreases the chance of your associateship ending in ownership. While it is not mandatory that these two documents be completed prior to the onset of employment, all of the terms that you and the prospective employer have agreed to should be in a brief written outline form prior to commencement of employment.
Where can you find help? Sources of advisors include mentors from dental school, national speakers and experts, and even some of the dental supply companies have in-house consultants. Most of the dental finance companies can also provide assistance. While most dental practice sale brokers can also provide assistance, they frequently view only the seller’s perspective and should be used cautiously. If relying heavily on a dental broker for assistance, the associate needs to check their references carefully. Each party should have an accountant (one who specializes in only medical/dental clients) and an attorney review the proposed agreements. The accountant is especially important relative to reviewing a buy-in for proper tax allocation of the purchase price.
An attorney should be used to review proposed documents. Typically the seller’s attorney will draft documents. The associate’s attorney should be hired to review, not negotiate, the deal. Because of most attorneys’ adversarial and confrontational training, if you allow your attorney to enter into negotiations, besides a large bill, the chances are less than 50/50 that a successful associateship will even start. Get a fee quote prior to hiring your attorney. Your total fee to review an Employment Agreement and Letter of Intent should not exceed $500-$1,000.
Compare your goals with those of your prospective employer. Determine whether the practice can support more than one doctor. Be certain the offered compensation can support your personal financial needs. GET EVERYTHING IN WRITING.
For many practices offering an associateship, this is their first attempt. For many others, there have been prior associateship failures. Both instances point out the need to get competent help. While one advisor can help both doctors put the framework of a successful associateship together, it is most important for the new associate to have any proposed arrangement carefully reviewed by their own advisors.
In prior years, one considered themselves lucky to find an associateship position. Today, there is an acute shortage of new associates and new dentists entering the marketplace. This has created a backlog of unfilled positions and a “buyer’s market.” It has therefore never been more important to carefully evaluate an associateship position.