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CONTRACT AWARENESS

While this article is primarily for young dentists looking at employment contracts, the owner doctor should take note too. We work with a lot of owner doctors and first year doctors concerning that first contract of employment. I will try to touch on a few of the big issues in this article, but the details are just as important to stage a successful transition. (For more detailed information for both the owner and employee, you might consider acquiring a copy of my book THE ROADMAP to Wealth & Security: Your Complete Guide to Dental Transitions. It can be ordered online here: www.summitpracticesolutions.com/products. If you have questions, just call Max at 800-252-0955 or 214-762-3117 cell.)

The conversation usually begins with “Could you review this contract and tell me what areas I should change?” So, let’s get this clear young doctor: You have little if any wiggle room on these contracts. We have over 6,000 graduates every year coming into the job market and for the first time in history, owners now have an unlimited supply of doctors to pick from. If you rock the boat too much, they will just move on to another candidate.

From the perspective of the owner doctor, I often see a lack of engagement in the process of crafting a great contract. Going even further, you are staging all future negotiations with your associate by how you conduct yourself with this initial contract and interaction. This may be the most important contract you draft, especially if you are looking for a future partner or longevity of an associate/employee dentist. This written contract must be fair, impartial, and establish a win/win conclusion that will address any problems that might arise and offer remedy to proceed.

Let’s review a few quick bullet points that surface in every contract negotiation and how you might address each of them. I will keep it short and to the point.

  • Term of the agreement: I would probably do only a 6-month contract with an automatic renewal for another 6 months if both parties agree. This establishes a specific time for the young doctor to prove him/herself and also helps the non-assertive owner, who, if finding that the arrangement is not to their liking, will have an easy way out.
  • Pay: Both parties need to understand that there is no “standard” pay for an employee dentist. Heartland pays theirs 25% and some others are closer to 30%. The real formula for pay is based on the individual practice, its production, profit, and potential for growth. I think that most associates would agree that the owner doctor should make a profit on their labor. If not, why would you hire a dentist? I would hope that at a minimum you should expect a 5%-10% return on your investment in an associate. So, if you have a 70% overhead (it might be more when you add that doctor if not just by having to hire another assistant and that should be anticipated) and you were hiring an associate, the most you could pay is 20%-25% of their collections and not lose money on the hire. This is a tough, real world business conundrum and speaks to the issue that most practices are not ready for an associate. My suggestion would be to “ramp” the pay scale as the doctor produces more. Example: 25% at $0-$25,000 collections, 27% at $25,000-$40,000, and closer to 30% at $40,000 and above.
  • Timing: When should the owner doctor consider an associate? You need to be able to produce at least $120,000 a month by yourself, have 50-75 new patients a month and the ability to double it when you bring in an associate (you have to understand how to use marketing and consumerism to make this happen). When your overhead is below 63% (so you could afford to pay them a decent wage), have a hygiene department that is growing and producing at least 33% of the total practice production (and near the point of need to hire another hygienist), you are poised for growth and about ready to hire that associate doctor.
  • Termination: There should be “for cause” and “not for cause” termination language in the contract that spells out what the associate must do to maintain their job.
  • Benefits and Perks: You will need to consider that in some states you must treat all of your employees equally so understand the laws and statutes that govern your corporation and state HR codes.
  • Non-compete clauses: There will be a non-compete clause in the documents for employment. The owner is trying to protect his/her investment by defining a reasonable time and reasonable distance where the associate who has been fired or quits cannot compete with the original practice. Some states are not very good at legislating the enforcement of non-competes. But a statement to the effect that if the laws or court disallows the non-compete portion of the contract, that the owner is willing to allow the doctor to compete as long as they pay an agreed upon sum for the transgression (this will be hundreds of thousands of dollars). This will be enforceable. Finally, there should be penalties for a reasonable time for an associate who is no longer working in the office if they try to hire any staff away from the practice (this would be $10,000-$15,000 per occurrence).

 
I hope this gives you a reality check on employment. You will find hundreds of pages in my book to help you stage a successful transition. This is how you Summit: Practice management done right.
 
Michael Abernathy, DDS
972-523-4660 cell
abernathy2004@yahoo.com
 

    PS. Check out this previous article for more on the subject: Ready for an Associate?