Dental Practice Broker Articles
Can You Afford An Associate?
By Larry Chatterley and Randon Jenson, CTC Associates
The goal of any associate-type arrangement is to create and maintain a mutually rewarding personal and professional relationship between two or more doctors. Unfortunately, many associate arrangements do not address one of the most fundamental elements for a successful relationship, that is, does the dental practice have the capacity to sustain both doctors?
With that in mind, here are some key areas related to the dental practice financial capacity that need to be addressed before entering into an associate arrangement. The key questions are as follows:
- How far is the current practice booked out? If the current practice is booked out only a week or two and has holes in the operative schedule, then the practice will likely struggle to fill in the gaps for a new associate. If the practice is seeing 15-20 new patients per month, which usually is just enough to keep one doctor busy, then it’s going to be difficult to keep an associate busy enough for him or her to want to stick around.
- Does the dental practice have the sustaining power to subsidize the new doctor to up to $8,000 per month for the first six to twelve months while building the practice?
If the answer is no, then the practice may not be in the position to bring on another doctor.
- Does the dental practice have a lot of debt and/or is the overhead exceeding 65%? Practice debt can polarize the relationship by making it difficult for both parties to meet their financial obligations on a timely basis.
- What form of marketing is in place to help increase patient flow? Unless this is addressed and in place before the associate starts, there might be difficulties having a successful associateship.
Most associates are paid a percentage of their respective gross production. In most markets and situations, this percentage for general practitioners is about thirty percent. (Specialty practices/specialist associates are often paid a higher percentage.) It is not uncommon, however, to see a flat wage or salary paid as well, or a variation of the two. In other words, the associate is paid a flat rate per day (i.e. $500) or 30% percentage of production, whichever is higher. This method is particularly effective in situations where it may take the associate several months to “ramp up.”
However, the host doctor should expect to see a consequential decline in income over the short term as he/she subsidizes the associate’s income via the draw. This will last until the associate’s percentage wage is sufficient enough to cover the minimum, at which point the host should expect to begin earning an override on the associate’s production. The question here is if the dental practice is in a financial position to subsidize the associate wages over a 6 to 12 month period. If not, then maybe step back and reassess the situation.
Years ago this was not the case. One could just add another doctor and more new patients would flow through the door. This has not been the case in the more popular and competitive areas of the country for more than a decade.
If you or your practice are experiencing greater patient flow than you can comfortably handle, then you might be good candidate to hire another pair of committed hands to handle the load. If not, and you still want to hire an associate, you must assess the dental practice transition potential and create an effective game plan to increase patients or reduce overhead.
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