Dental Practice Reporter

By Brent Anderson, professional transition strategies, Practice Transition Consultant.

Here’s a dilemma that’s not uncommon in dental practices with two or more owners: What happens when one of the owners is ready to retire and the other wants to keep working? In the past, choices were limited, and the owners either had to sell the practice or bring in an associate (or multiple associates) to buy in so the doctor who wanted to retire could take the value of their share and leave.

The flaw in the associateship model is that associate arrangements fail far more often than they succeed – up to 80% dissolve because the owner’s expectations and priorities are out of sync with the associate’s, their business styles are incompatible, they can’t agree on a practice transition timeline or they’re a mismatch philosophically on other vital business issues.

Luckily, dentists who are practicing now have more options than selling outright or bringing in associates. Here’s a closer look at some of the options practice owners have today, including partnerships through dental service organizations (DSOs), followed by advice for practice owners who are trying to reconcile mismatched retirement time horizons.

Today’s Practice Transition Options

Practice owners have many more choices when it comes to practice transitions today than they did in years past, particularly since the number of groups and DSOs is growing rapidly. That translates into opportunities for doctors to gain more value when selling their part of a practice and/or a chance to roll equity into the practice or DSO to generate investment income after they retire.

For doctors who plan to keep working after a co-owner retires, options for practice transition include arrangements where they can benefit from an equity roll into the practice or DSO too while also gaining support from the purchasing group. Support can include assistance with managing the business, help with clinician or manager recruiting, etc., to keep the practice going strong. Transition options include:

• Merger to form a group practice: In this scenario, multiple practice owners merge together to create a single group, which makes individual exits less disruptive because there are more doctors to share the workload. It helps maintain stability among the different practice locations and can even make the new group of practices more attractive if they choose to sell to a group or DSO at a later date. This can be a great option that yields excellent results, but its success hinges on all owners agreeing on a post-merger business strategy.

• Joint venture or group buyout: This transition strategy involves a group purchase of the whole practice or a portion from the current owners, enabling the doctor who wants to retire to leave while the doctor who wants to continue working to keep practicing until they’re ready to step away.

• Equity roll: An equity roll transition can take a number of forms that enable practice owners to sell all or part of the practice to a DSO. After the sale, the doctors can invest all or part of the cash from the transaction into the DSO’s holding company as an investment – regardless if they’re the doc staying on or the one retiring.

The right fit for practice owners will depend on their personal preferences and plans, business goals and risk tolerance. But given the high failure rate of associateships, it’s great to have more options.

What To Know If You’re Considering a Practice Transition

If you’re a practice owner who is looking for a way to deal with a retirement timeline that doesn’t match up with your practice partner’s, make sure you fully understand your options. Transition strategies involving mergers, equity rolls and joint venture agreements have unique pros and cons, so it’s important to be familiar with each transition model so you can select the option that works best for your situation.

It’s also important to plan ahead — advance planning is the key to a secure financial future in a solo practice, but it’s doubly critical when more than one person owns the practice. That’s because it’s more complicated to map out and execute a plan when multiple people are involved. Time horizons and goals will vary, so early planning is crucial, and five years out is a good target runway.

Also keep in mind that transaction structures can be complex, and there are hundreds of groups and DSOs that operate in various ways, so don’t go it alone. A dental practice broker can help you maximize value before putting your practice on the market, understand the different deal structures and DSO types, and compare offers on an apples-to-apples basis so you can make the right decision.

So, if you’re in a situation where one practice partner wants to retire and the other wants to continue working, remember that associateship isn’t always going to be the best option and you have more choices than ever before. If you start planning now, educate yourself on practice transition options and get the expertise you need to make the best choice for your practice, you can successfully reconcile mismatched retirement time horizons.