Consistent growth, a successful practice, and raving fans for patients all mean that at some point each of us will need to expand and add doctors. Growth is the natural result of doing things right. Inspire your patients, improve your clinical skills, and fine tuning your leadership will always mean growth.
Let’s start building your knowledge to ensure success with a new partner or associate. Maybe a better way of looking at an associate might be a “trial partnership”. This series of articles will explore finding, on-boarding, and growing with additional doctors in your practice. Because I want to help recent graduates or, in this case, the potential trial partner or long-term employee, I am going to convey both sides of the situation. I want the senior doctor to see his or her role as well as the new doctor’s job. What should a new doctor look for in a practice and owner doctor? What should a senior doctor look for in a new doctor? While you may never have a partner and remain the sole owner, you will need to hire additional doctors if you intend to consistently grow year in and year out. From this point forward I am going to use the titles “associate” and “trial partner” interchangeably. If you have read the Super General Dental Practice, you already understand that every practice I have owned is built on being Purpose Driven, Doctor Led, and Staff Owned. (Go to www.supergeneralpractice.com for your free copy.) It is the staff ownership and “partnering” with each team member that has driven my practices to consistently higher profitability. In that vein, I want you to treat any employee, and especially an associate doctor, like you would a partner. That is why I refer to them as trial partners. In fact, most of my associates become partners in my practices. Consistent growth will always demand that you will at some point need to add doctors. Allow me to list all the great things that a Partner or Associate employee doctor can bring to you and your practice.
More time off. Keep in mind that we expect you to be poised for growth and fully engaged in doing whatever it takes to makes this transition a success.
Someone else to do jobs that don’t play to your strengths or interests. In finding a partner/associate we do not want someone exactly like ourselves. That would diminish the patients available to you and what you do. We want someone to compliment you. Nothing should be referred out. If you can keep the children, oral surgery, endo, sedation, implants, orthodontics, etc., in your practice, you will not need as many new patients to keep the young doctor busy. I call this “finding the Phantom Practice”. The phantom practice represents the treatment the owner cannot or will not produce. It may involve any endodontic, periodontal, surgical, or other treatment modalities the owner chooses not to do. It can also include the patients that cannot be seen on a timely basis because the owner is already booked out too far. The only way the phantom practice can be realized, and the incremental income and profitability made real, is by adding another doctor to treat those “surplus” patients and those services currently not being performed in the office. You cannot expect to bring in a new doctor successfully by splitting the already too few patients your practice attracts and expect anything but a catastrophe.
The value of the group practice model. Cross referrals, peer consults, problem solving, and shared responsibility are all benefits of this model.
Provide passive income. Every associate or new doctor should render you a 5-10% profit over and above what they are paid. Passive income is money paid to you without you having to personally do the work. Why would you hire someone that costs you more than they add to the bottom line? This creates an algorithm that determines what you can afford to pay them. While most recent graduates expect to make a minimum of about 30% of collections, you may not be able to afford this. If your overhead is 70% or greater, you will be paying them out of your pocket each month rather than out of the profit pool. If you decide to pay 30% of collections and expect to make 5-10% profit on your trial partner, you would need to have a 60%-65% overhead for this to work. Remember that you will have added at least another assistant and have to fix up that op no one else wants to work out of in addition to your current overhead. If you enter a relationship that does not work on paper trying to create a profit, you are doomed to fail. That is why we always ask our senior doctors to share the real numbers and expectations of profit with your young doctor prior to having them start work. There must be a plan in place to control overhead and create a margin of safety in profitability.
Increase the value of the practice. The value of the practice that you own will increase due to the increase of production of the new doctor and expanded hours. If you are looking to a future sale to this new doctor, the value and appraisal should increase to improve the sale price for either all or a portion of your practice. The sales price of the first portion of your practice will be less than the subsequent sales amounts of the remaining part(s) of your practice. For example: Let’s suppose you are going to sell 1/3 of a million-dollar practice for $242,000 (a million-dollar practice will sell for about 70-75% of the last 12 months collections, or about 1.5-2 times the net profit in the last 12 months, so let’s call it $725,000 for the entire practice. So one third of that would be about $242,000). After a couple of years, the two of you are now collecting $1,600,000 for the entire practice. The next third might sell for around $400,000 or an increase of over 60%. If you were to consider a sale to an individual or a DSO you would find that having a productive associate would only increase your EBITDA and increase the value in a sale.
Keep more profit in the practice. This would be from not sending out any procedure(s) to outside specialists. This can also be accelerated by using the fixed costs, rent, equipment, and utilities during an expanded (hours per day and/or days per week) schedule.
Cross coverage and temporary disability coverage. In a solo practice, a disability would mean the closure of the practice until the owner recovered. A partner/associate would ensure that the overhead, staff, and patients would be taken care of.
Built in buyers for death, disability, or retirement. Every partnership will have a Buy Sell Agreement that will provide funds in the event of an untimely death or disability via an insurance policy paid by the partnership. In other words, the surviving partner would not have to come up with the money and would then own the practice free and clear. This creates security for your family and heirs. If your additional doctor is an employee, there could not be a better opportunity for them to purchasing the practice. They will know and understand the office and will know exactly what they are paying for.
Extended office hours. While we do not expect the senior doctor to personally work more hours, we do expect the office to be open more hours. For the first time in your career the office will actually be open when patients want to come in. We are introducing “consumerism”: Giving patients what they want, when they want it.
Decrease overall overhead trend. Expanding hours will allow better control of fixed overhead costs that are constant and ongoing, whether you are working or not. The office will never have to close due to vacations or other time away.
Allow the senior DDS to retire over time. Many of you will find this to be the most attractive feature. You may be able to take that trip without fear of all of your expenses overtaking your productivity. Someone will be working even though you are out of town.
Able to delegate responsibilities. Will allow the senior doctor to share the responsibility of managing and leading the practice. This ensures full time coverage from a management sense during all hours of operation. I can remember the first time I realized that someone other than me was actually concerned about overhead and whether or not we were making a profit.
Able to attract, keep, and motivate better staff. More and varied hours allow you to attract a better staff mix. By driving down the overhead in various areas, you will be able to pay a more competitive salary to your employees.
Welcome to the strategy of consistent growth through a multiple doctor office.
This is how you Summit.
Michael Abernathy, DDS