For once, hear this from an independent transition consultant rather than a broker. Here’s a way you can phase out of practice at your own pace and gain $700,000 while doing it. By taking in the buying dentist while you’re doing the transition, it grows the practice and, because you’re part of that growth, you profit from it. What you’re doing is converting your practice into a business - like other businesses do. You’re maximizing the return on your greatest asset - your practice.
Because you profit during the process, it allows you to get into such an arrangement at almost any time you’re ready. Furthermore, you can cut back to as little as 90 workdays per year. Sound impossible? That’s exactly what I did and I’ve been conducting seminars and consulting with dentists about it ever since. Not only is the transition doable, but with practices busier throughout the country, there’s never been a better time to do it.
The arrangement does involve working with another dentist for a while, but it’s not a real partnership. It’s a gradual transition leading to retirement and it has a highly beneficial means to an end. The transition can last anywhere from about two to 20 years depending on your objectives, and you can get out of it at almost any time.
The arrangement usually also involves giving up some ownership as you proceed, but the payoff is the security of having a built-in buyer for the practice at a higher sale price. This would be especially important in the case of death or disability. One way or another, you’ve eventually got to dispose of the practice. Isn’t this as good a way as any?
What’s in it for the junior buyer? A bigger and better practice than he or she could otherwise acquire, the mentoring for taking it over, and greater security and income along the way. It’s truly a win-win arrangement. My own buyer agrees.
So how do you go about it? There are five steps.
1) Step one is deciding what kind of a transition you want. Some examples are: Do you want the junior to start as an associate and, if so, how long do you want that associateship to last? At the end of the associateship, will he or she be buying the entire practice or a portion of it? After the final sale, do you want the option of working again?
One good way to structure it is to have an initial associateship period of about two years. During this period you’d stay in full control, make a reasonable profit, and have an easy option of ending it if it isn’t working out to your satisfaction. At the end of that period you can, for example, sell half of the practice to the junior. This would extend the transition for you compared to selling the entire practice, and it would give the junior a share of the ownership as well. With the junior working harder as co-owner, it would grow the practice more and that would benefit you both. Finally, you could sell the junior the rest of the practice at a time of your choice and, after that, you could continue working as an associate. Wouldn’t it be nice to work for, say, 35 percent commission with no business pressure?
You’ll also want to decide when and how much to cut back on work. By cutting back, you’ll not only get the additional time off, but the cutback will attract a better, more permanent junior because he or she will gain the workload from the cutback as well as any growth beyond that.
You may not want to cut back to the 90 workdays I did, but you could soon cut work by one day per week and extend your vacations. I cut to three days per week within several months and, within two-and-a-half years, I was taking five months off per year. Furthermore, because of the profits from the arrangement, this can be done without a decrease in your overall income.
2) The second step is getting professional advice on setting up the transition. In addition to attorneys, accountants, and perhaps brokers, an independent consultant can be helpful by providing objective advice on just what your needs may be. There also are written guides available on such transitions.
3) The third step is to find a candidate. This is usually done through a broker or by placing an ad. When using a broker, professional advice is recommended for selecting the best and least expensive one for your particular needs.
There are two things needed in this business: true consultation for just what a dentist’s particular needs may be, and objective advice in selecting a broker.
4) The fourth step involves sitting down and negotiating the arrangement with the candidate of choice. This must be done with particular caution, because the tendency for a seasoned dentist is to be too rigid about what he or she wants. This is a two-way street and you must remain negotiable or the junior will run. In fact, rather than stating your terms and conditions when interviewing a candidate, it’s better to just listen to what the candidate wants and then negotiate any differences later. For the best chances of success in these negotiations, don’t be afraid to get some outside advice.
5) The fifth and final step is the legal completion. For this, an attorney experienced in such transitions as well as a written guide covering the subject can be important. The objective is to end up with a comprehensive legal agreement covering all the issues. The better the agreement, the better the whole transition is likely to be, with the fewest problems.
Here are a couple of tips in completing the agreement.
Instead of involving the two parties’ attorneys early on, it can be better to try to first reach some basic agreement, perhaps with some separate consultation. Unfortunately, attorneys looking out for each of their clients’ best interests can be over zealous, which can interfere with the two dentists’ desires of wanting to bring the arrangement together.
The other tip is that an initial letter-of-intent can help jell the dentists’ intents, and then the final legal agreement can follow more easily.
Even though it’s typically done the other way around, it’s better to sign the agreement before the junior starts work. Otherwise, his or her intention may be to just try out the arrangement, with little underlying commitment. Also, without signing first, the senior would usually lose bargaining position and have to give more on issues in order to keep the junior.
It is true that there can be problems in such arrangements. It is also true, however, that by following the above steps, a transition can be very successful. This will allow you to phase out of practice at your own pace. In addition, it is usually much more lucrative than a straight sale.
Contrary to common thinking, however, this is not something that can wait until you’re near retirement. Planning should start many years ahead.
