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Practice Administration

Exploring Associateship: Due Diligence Questions

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Summary:  Exploring an associateship position is a vital process which most dental graduates will explore.  The following offers some useful key points to consider when analyzing an opportunity. 

 

It is essential that you do your “homework” about the dental practice and the contract.  You should also have an employment attorney review your contract before you sign it.  Reviewing an associateship opportunity needs to reflect your career intentions.  “Just a job” is much different than intentions to buy or buy-into a practice. The list of items below becomes more important in situations of an associateship leading to future ownership (buy out or buy in). 

This is a generic list of key questions/concerns based on assisting students in reviewing well over 100 associateship opportunities.  These points are in no particular order and are not intended to be exhaustive.  Some of these issues may not apply in your case.


 

1.  What is the business overhead percentage of the practice?  All other things being equal, the lower the overhead, the more room you have to negotiate your compensation and benefits.


 

2.  What is the collection/production ratio?  This is critical especially if you are being paid from collections instead of production.

            

3.  What third-parties are involved in the practice (insurance plains, Medicaid, etc.).  Does the practice accept third-party payments?  If third-parties are involved, what are their reimbursement schedules . . . how much of the practice revenue is generated from third-parties?

            

4.  How many new patients are coming into the practice per month?  If you are entering a practice as the second dentist, you will need in the 20 – 25+ new patient range per month.


 

5.  How far out are patient’s booked?  This gives an indication of demand for services; the longer, the better for you.


 

6.  Practices typically need to generate @ $750K - $850K +/- per dentist in order for an associate to earn a living.


 

7.  Is the employer incorporated?  If so, this will significantly increase your tax burden if you ever buy into the practice.  You should be able to avoid this tax burden by consulting with an attorney and accountant to make practice loan payments with pre-tax dollars. 


 

8.  What is the value of the practice now?  Has an appraisal been done?  Will you have to pay for any “sweat equity” you build into the practice?

            

9.   What benefits will you receive, if any?  Benefits required by law for employees include: employer’s portion of social security tax (@ 8% of salary), worker compensation (@ .5 - 3% of salary), unemployment (@ 2% of salary).  Benefit packages vary widely in associateships.  Associates sometimes receive malpractice insurance coverage and some vacation time.  Disability coverage, health care and continuing education benefits are less common.

            

10.  Does the practice have an office policy/employment manual covering issues such as asepsis, financial policies, safety training, benefits, etc.?  If so, acquire and study the manual.  If not, you might ask that these be developed soon.


 

11.  How will patients be assigned?  It is usually helpful if patients are assigned to the first appointment opening available in the schedule unless they request a specific provider.


 

12.  Are the facilities adequate for the number of dentists and staff?  You will need at least two operatories within a few months of graduation.  Are the operatories of adequate size for modern technology, roughly 10 x 12?


 

13.  What is the active patient count?  At least 1500 - 1800 patients are recommended for a two dentist practice.


 

14.  If you will be working as an independent contractor, you should receive a much higher percentage of collections/production in order to cover the additional taxes owed by independent contractors.  Consider establishing your own corporation to mitigate the tax consequences of being an independent contractor.  The corporation could act as an independent contractor and you could then work for your own corporation.  Remember, as an independent contractor you receive no employment benefits, not even unemployment insurance or workers compensation.  You will need sound counsel from an attorney and accountant as an independent contractor.   


 

15.  Will you receive any compensation for supervising dental hygiene?  It is reasonable to negotiate for at least the examination fee to be credited to your collection/production and perhaps for a percentage of certain procedures such as radiographs.

 

16.  If you will owe a portion of the laboratory bill, how/when will this percentage be calculated?    If you are responsible for a portion of the lab bill, ask that your portion be taken out of the total amount of your generated collections/production before your collections/production percentage is applied.  E.g.,

            $30,000 in monthly collections

           - $3000 in lab bills

            = $27,000 in collections

            $27,000 x .34 = $9,180 monthly income

            VS. 

            $30,000 in monthly collections

            X .34 = $10,200

            $10,200 - $3000 in lab bills = $7,200 monthly income

  The difference is significant, obviously.


 

17.  Remember, an associate is to some extent a profit-center for the owner—it is his/her business, after all.  Don’t be surprised if the owner realizes 25% or more profit for each dollar you generate for the practice.


 

18.  What role will you have in supervising, hiring, reviewing dental assistants?  Will you have the chair side help needed help from assistants?


 

19.  Consider the possibility of a guaranteed base salary to meet your minimum monthly budget requirements including student loan payments.  This assumes you have developed a detailed personal budget. You may need to earn $20,000 - $40,000 in gross income (possibly more) simply to make your student loan payments.


 

20.  Consider the possibility of a stair-step compensation system in which you earn a higher percentage for the more revenue you bring into the practice.  An example based on monthly associate-generated revenues might look like this:

            0 - 20,000 = 30%

            20,000 - 25,000 = 32%

            25,000 - 30,000 = 34%

            30,000 or more = 36%  

 

21.  Is a restrictive covenant involved and, if so, is it reasonable/enforceable?  Will the restrictive covenant/covenant not to compete limit your professional career options?  Consider including a “waiting period” of 60-90 days in the contract before the covenant takes effect.  That way you have an “out” if the associateship position is not what you thought it would be. 


 

22.  If you intend to buy or buy into the practice, you may wish to include a contract section or addendum addressing the option to purchase within a reasonable time framework—for example, 6 – 24 months after starting your associateship position.


 

23.  What are the expected days/hours of work (chair side, completion of paper work and administrative duties)?


 

24.  How will you and the owner cover emergency appointments outside of normal office hours?  Share equally?  Have you cover all emergencies to help introduce you to more patients?


 

25.  Will you have the materials and equipment you need to do the work you will need and want to do?


 

26.  Do you want the owner to serve as a mentor to you in terms of clinical skills and business skills?  Is the owner willing/available to do this?

 

Suggested Sources for Additional Information

 

  1. American Dental Association, Associateships:  A guide for owners and prospective associates, Edition revised by  Berning R and Domer LR. Chicago, IL: American Dental Association, 2005.
  2. American Dental Association, Transitions:  Navigating sales, associateships & partnerships in your dental practice.  Edition by Hill R.  Chicago, IL: American Dental Association, 2008.
  3. Callan RS.  About asociateships.  In: Dunning DG and Lange BM ed.  Dental Practice Transition:   A Practical Guide to Management.  Hoboken, New Jersey: Wiley-Blackwell, 2008:387-409.
  4. Dunning, D., Lange, B, and Madden, R.  Compensating Associates for Supervising Dental Hygiene Production:  A Discussion of an Often Taboo Topic.  Dental Hypoth 2010 1:85-93.
  5. Dunning, D.G.  Walking with dental students through the minefields of associateship opportunities.  Dental Hypoth  2011; 2:83-86.
  6. Dunning, D.G.   Associate to owner transition--when should a dental practice be valued? Dental Hypoth 2011; 2:113-117.
  7. Halley MC, Lalumandier JA, Walker JD, Houston JH.  A regional survey of dentists' preferences for hiring a dental associate.  JADA 2008;139(7):973-979. 
  8. Heller E.  Top ten reasons associateships fail.  Preview  Fall 1999:12-17.  A condensed version of this article was published again in 2009 in a two part series at www.dental-tribune.com.  The first part was accessed on July 31, 2009 at http://www.dental-tribune.com/articles/content/id/507. 
  9. Henry Schein Professional Practice Transitions, Inc.  Associateships--enhancing your odds for successful relationships.  Privately published:  2006:1-8.

 


Great piece-looking forward to the followup.
Docholliday at 3/1/2012 3:18 PM