Merging a dental practice is a huge decision. It can be an attractive option because it often reduces costs while also often increasing access to patients. Planning carefully and addressing potential conflict areas before they cause problems is the best way to go about this often-complex process.
Merging dental practices generally happens in one of two ways: as a transition process or as a collaboration. The type of merge will have a huge effect on the merger’s overall goals and the logistics of the transition process.
Merging for Transition
Perhaps two dentists are joining forces because one is transitioning out of the practice. The second dentist joins the practice as a means to create a succession plan. A new or mid-career dentist will generally have longer-term goals, while the transitioning dentist may be ready to retire in the near or not-so-distant future.
In this type of fact pattern, both parties will generally (and should) use an employment agreement of some kind. The agreement might be as a partnership, or it could be as part of a buy/sell agreement as well.
Merging for Collaboration
The second type of scenario involves two dentists merging who are generally on the same level in terms of their careers. They see the benefits of the merge, and they want to take advantage of expected decreased costs and increased revenues.
The partnership might develop because they want an investment opportunity, or they want to develop a new, combined identity for their practice. They might also want a collaborative environment in which to work on a daily basis, where they can foster and grow their practice.
While there are many benefits to transitioning into a shared practice, the pros and cons should be weighed carefully as you make this important decision.
Sharing a practice with someone else will generally decrease your overall costs. If overhead is divided in two, for example, you immediately reduce your costs by half. Shared resources, including something as simple as common office space, can be a substantial cost saving as well.
Dentists also decrease competition in the area when they combine practices. Rather than having two competing practices, a partnership may end up being more lucrative than both solo practices.
You also develop an additional layer of legitimacy in surrounding areas as well. That is, if you expand to more than just a “solo” practice, potential clients may see your company as a true dental “practice” rather than an individual who is a dentist. While that is not the case everywhere, that mentality can be very helpful if you are looking to grow and attract new patients. Adding new dentists that have a particular specialty might also be very appealing for new patients.
In addition, merging can give you a helpful way to make your investment more liquid. Having shares of a business is much easier to sell compared to selling an entire practice. Setting up the merger in that way allows you to easily create a succession plan when you are ready to make that type of move.
In general, the benefits far outweigh the downsides of merging practices. However, you give up some control when you add a partner to your practice. Instead of coming and going as you please, for example, there are some minimum expectations about your work that will likely be established. You must often also consult the other person when making significant decisions that will affect the dental practice as a whole.
If you and another dentist are truly merging practices, rather than adding a dentist who has not started their own practice yet, it is extremely important that both practices are appraised and evaluated before the merge. Knowing the relative worth of each office will help the two dentists develop a compensation plan that makes sense based on the relative value that they are bringing to the new practice.
You also need to be sure that all of the dentists involved in the merge are compatible with one another. This unique type of “work-marriage” must work for everyone involved. You certainly do not want to commit to working with someone for the rest of your career that you do not know well or do not get along with well. Take the time to get to know every member of each team so that you can test the waters long before the merge.
While the concept of merging practices is not particularly difficult to grasp, actually completing the process can be quite complex. You should be sure to consider the logistics of the merge as you think about the planning process.
One practice’s location may be better than the other, so it might make the most sense to simply move the practice there. However, you should consider how a location change might look to new and existing patients. Will it make more sense for the brand to move locations to cut ties with the previous practice? If you are going through a collaborative merge rather than a transition merge, moving locations might be beneficial.
Is continuity of the previous practice important? If so, then moving locations may not make sense. If you want to continue the association with the previous practice, then moving might undermine that goal.
Will changing locations be an inconvenience to existing patients? For example, if you have elderly patients who have trouble getting transportation, are you going to lose that patient base if you move?
Team members need to be informed about the merge early on, especially if the merge will result in significant changes in their working environment. However, talking to them too early could result in a large exodus from the practice that you had not planned.
You should also consider whether you need to release some of your team members if it makes more sense to decrease the workforce in the new structure. For example, you may not need more than one receptionist for the practice any longer.
Be straightforward and honest with your team once you have a plan for how their positions will change. Timing and planning are important when it comes to your team.
If you are searching for a new identity as part of the merged practice, you should attempt to cut ties with both previous practices. This is particularly important for dentists at the same level and want to grow together in their practice.
On the other hand, if one dentist is transitioning out of the practice in the near term, it might make sense to keep the existing name to continue the current patient base.
Insurance and Fees
As your practice changes, your insurance, licensing, and fees may also change. You might also need short-term insurance as you make the transition from one practice to another. Discuss these issues with your broker and your dental attorney before you start the merger process.
Dividing Assets, Revenue, and Expenses
You need to have a frank conversation with your potential partner before the merger to discuss their expectations regarding the financial aspects of your relationship. Consider whether you will have an even split in income, for example. If one person only wants to work part-time, perhaps they should make “part-time” income as well.
These conversations can be difficult, but they are absolutely necessary. Create an ownership or partnership agreement (or employment agreement) that addresses all of these issues long before you actually need to work through these issues in practice.
Consider Practice Philosophy
Not all dentists will be compatible enough to work together, and that compatibility depends a great deal on their overall goals for their practice. For instance, if one partner is money-driven and the bottom line is their focus, they will clash with someone who wants to frequently take on charity work.
Talk to your potential partner about his or her goals for their practice. Think both current and long term needs as you work through this conversation. Your philosophies must align, or at least compliment one another, to have a good working relationship that will last for years to come.
Merging your practice requires careful planning and consideration of a wide variety of aspects of your practice. Having a trusted advisor work with you through this process can be invaluable. Contact dental attorney Ali Oromchian for a complimentary consultation to discuss how he can make this transition easier and more effective for everyone involved.
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