Is bringing a partner into your dental practice an important step towards long-term success, or a recipe for disaster? Ask yourself these key questions before you take the leap. By Shane Conroy
A business partnership is much like a marriage. Find a compatible mate who shares your goals and values, and you’ll be well on your way to a happily ever after. However, tie the knot with the wrong person and it could all end in tears.
For better or worse, bringing a partner into your practice could wield a similar impact on your professional life, so there’s much you should consider before signing on the dotted line.
Do you really need a partner?
A partnership is not necessarily the right choice for every practice and it does come with some potential drawbacks.
For starters, you need to ensure your practice has enough work for two dentists, says Dr Phillip Palmer, Prime Practice chair. “You don’t want to be competing for patients with your partner, so it’s essential that there’s enough existing work to sustain you both.”
Dr Palmer also warns that a partnership may be the wrong choice if you’re not prepared to share decision-making responsibilities, and that it can be easier to sell an entire practice than it is to sell your stake in a partnership.
“Dentists need to distinguish between when they need a partner and when they need to employ an additional dentist,” Dr Palmer explains. “It’s much easier to put an end to an employee relationship than it is to terminate a partnership, so you need to be sure that a partner will be contributing significantly more to your practice than an employee would.”
What will a partner add to your practice?
While selling part of your practice to a partner will bring in some extra up-front capital, the decision should be about more than money.
“Owning a dental practice can be very lonely, and a partnership is a way to mitigate this,” says Dr Joanna Gray, coach/trainer at Momentum Management. “Most do it to share the load of both management and expenses.”
Dr Palmer advises that management duties need to be clearly defined at the outset of the relationship. “Will your partner handle all the human resources duties, or will they take over the marketing or some of the financial management? You both need to be very clear about this; otherwise, you could find yourself putting out fires all day,” he says.
Dr Palmer says a partnership can also be a valuable employee retention tool: “If you employ an excellent dentist that you want to keep in your business longer term, offering them the opportunity to become a partner gives them a greater stake in your practice. This can provide them with a good alternative to starting their own practice in competition with you.”
What should you look for in a partner?
Finding a partner that is a good fit for your practice is vital to the success of the agreement. Dr Gray says there are three main considerations when assessing potential partners: clinical compatibility, compatible values and compatible medium-term goals.
“A good partner shouldn’t be a duplicate of you. Rather, they should add value over and above what you can do. For example, if they do orthodontics and you don’t, they can significantly expand your patient base.”—Dr Phillip Palmer, chair, Prime Practice
“The person in question should be interested in dentistry that is either consistent with or at least compatible with yours,” she says.
“Compatible values are also important. It makes things hard if one person has a strong financial motivator, but the other is motivated by helping everyone they meet. And you should both want to dedicate roughly the same amount of time to the practice over the medium term.”
Dr Palmer adds that their clinical skills should be at least on par with your own, and that it’s particularly helpful if the new partner has clinical skills that you don’t. “A good partner shouldn’t be a duplicate of you. Rather, they should add value over and above what you can do,” he says. “For example, if they do orthodontics and you don’t, they can significantly expand your patient base.”
How should you determine the buy-in price?
Negotiating an appropriate buy-in price can be the most difficult aspect of bringing a partner into your practice. While Dr Palmer says around three to four times the practice’s annual profit is usually a good starting point, there are several variables to consider that are unique to each practice.
Dr Gray suggests calling in a specialist to ensure both parties get a good deal. “It’s not always easy to set a price that both parties agree is fair,” she says. “Some people are happy for their accountants to do it, but there are specialist valuers out there you can call on to ensure no relevant details are overlooked during the valuation process.”
What should be in the partnership agreement?
A partnership agreement should set out everything from the day-to-day management of the practice to how the income will be split and what happens when one partner wants to move on. Drs Palmer and Gray agree that it’s vital to have a detailed partnership agreement in place that covers all bases.
“Plan the divorce before getting married,” says Dr Gray. “Obviously everyone is enthusiastic at the beginning and wants things to go well, so they don’t think about the fact that it’s actually a business arrangement and at some point, it will end.
“Contemplate everything from how the management component will be divided to how you’re going to resolve disputes—for example, what happens if one partner wants to sack a dental assistant that the other really likes?”
When it comes to the financials, Dr Gray adds that “the usual arrangement is that each partner takes home 40 per cent of what they earn, and split other income and debts 50/50. Variations to this happen, though, so it’s not set in stone.
“You should also consider things like, will partner ‘A’ have first right of refusal if partner ‘B’ wants to sell? And what if partner ‘B’ wants to sell to someone partner ‘A’ really feels incompatible with? Can they veto the potential sale?”
However, even the most detailed partnership agreement is not enough alone to ensure a successful partnership.
“Partners should also make sure they’re having regular meetings to go over all aspects of the practice,” concludes Dr Gray. “Communication will be the key to your success.”