TWO YEARS IS A NORMAL TIMELINE for working as an
associate prior to buying into a practice. That time frame
may be shorter if the practice has the financial capacity
to support the buy-in sooner, or if certain, predetermined
growth benchmarks are met before the end of the two-year
period. That time frame may be longer if the parties
mutually agree to more time, or if a fair “earned equity”
associateship transition structure is pursued.
In either case, the parties should clearly define and
commit to the time frame in writing at the start of the
associateship, or after a reasonable “courtship period” to
determine long-term compatibility (e.g., about six months).
The price and terms of the buy-in should also be agreed
to in writing at that time. Failure to do so could result in
a scenario like those you’ve heard about, where time
stretches on for years without either an offer to purchase
or a commitment to sell. Making that commitment early
serves to protect both the buyer and seller.
A common two-year deferred period between
associateship and buy-in is generally needed to allow
practice growth sufficient enough to cover the buyer’s debt
service associated with the buy-in without creating a cash-flow pinch for the seller, or a dramatic shift in scheduling
and production overnight. It is advisable to fix the price of
the buy-in prior to the start of, or at least early in, the
associateship so as to avoid the associate paying for his or
her own efforts to grow the practice in the form of a higher
practice valuation at the time of the buy-in. The seller will
be compensated for his or her contributions toward the
practice growth in the form of an “override” (profits earned
from your work as an associate) in the interim, making the
arrangement fair for both sides.
FRANKLY, THIS SHOULD NEVER HAPPEN. Any associate
who is considering an ownership position when joining a
practice needs to have that question answered before
agreeing to employment. Not having a frank discussion
with the owner at the outset about transition plans can
result in wasting valuable years of one’s career by having
false hope about owning the practice one day.
For those owners who engage in proper transition planning, we have found the associate they recruit usually enters
into some form of equity transfer within a one- to two-year
period. There may be an exception to this timeframe if
someone feels they need to provide substantial clinical
mentoring to their associate.
When you join a practice, and have a clear timeline for
a buy-in or buy-out, make sure a practice valuation has
been prepared within the first 12 months of employment.
We have seen situations where associates practice for
several years, and then when it’s time to assume an equity
position, the owner presents the associate with a current
practice valuation, which results in the associate paying
for practice growth that he or she was responsible for! As
an owner dentist, it is not a bad strategy to “lock in” a
practice value at the outset. The associate will have no
excuses not to work as hard as possible since he or she will
not be paying for that future growth. Furthermore, the net
income of the business owner should also increase during
the associate’s employment phase.
Finally, at the time of the equity transfer, it is appropriate
to adjust the baseline value for inflation as well as to include
any additional equipment or technology purchases. In the
end, it’s all about having a well-thought-out plan and communicating your desires as an associate to the owner at
the outset of your relationship.
We ask two experts the same question
on a complex issue.
As an associate,
what is a normal
timeline for buying
into a practice?
I’ve heard about
for years who never
get an offer to
purchase, and then
they have to start
has been consulting dental
and medical professionals
for more than 29 years,
founded CTC Associates in
1988. Mr. Chatterley
specializes in transitioning
dental practices and
serving the business and
transition needs of dentists
throughout the West.
TOM SNYDER, DMD,
MBA, is the director of
transition services for
Henry Schein Professional
Practice Transitions. He can
be reached at (800)
988-5674 or TomSnyder@