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Practical Advice on Transitions in Endodontic Practice

By Sean Lawson, D.D.S., M.S.D.

There are many career paths that one can pursue as a new endodontist. Making a list of short-term/long-term goals will help in the initial decision-making process. This article will discuss starting an associateship, the importance of a business plan, and finally, buying an existing practice.

Associates are non-owner dentists working in a dental practice. An associate’s most common compensation arrangements are an employee of the practice or an independent contractor. Independent contractors pay their employment taxes, and most choose to incorporate. Incorporation adds a layer of protection and allows deductions of legitimate business expenses against earned income. As an employee of the practice, employment taxes are paid by the practice owner and deducted from each paycheck. As an associate employee of the practice, benefits may include health insurance, malpractice coverage, and retirement.

Most associates start with a legally binding contract that outlines the terms of employment. Before signing a contract, consider practice economics, personalities, and agreement.

Practice Economics: Will the practice support two or more endodontists? Is the dentist willing to expand or purchase new equipment? Is the dentist willing to work less, or is there a referral base to keep two or more providers busy? Has the owner recently slowed down in production? Analyzing the past 2-3 years of cash flow and tax returns is vital to understanding the practice’s financial health.

Personalities: What are the personalities of the practice? How will referrals react to a new provider? Is the existing doctor involved in the community or local dental societies? Get to know the doctor as much as possible. Go out to dinner, talk on the phone and meet in person as much as possible. The use of social media is a helpful tool to understand both the individual and practice personalities.

Agreement: Most agreements should include compensation, duties/responsibilities, benefits, and long-term goals. A solid written agreement should also include wording that encompasses all unforeseeable scenarios. Many dental companies and lawyers specialize in brokering practice transitions and associate contracts. Hiring a specialist can be expensive but is an excellent investment in balancing negotiations. In addition, many associateship agreements will outline a path to practice ownership.

Practice ownership that does not proceed with an associateship initially can be the most challenging pursuit but will allow the most financially rewarding long-term outcome. The benefits of ownership include independence and flexibility, job security, tax incentives, and business expense deductions. These deductions can include accounting, legal, auto, meals and entertainment, travel, cell phone, and insurance. Ownership also affords the individual better retirement options.

The two most common paths to practice ownership are buying an existing practice or a new start-up. A new start-up can be challenging and requires a plan of action or a business plan to be in place. A good business plan is the road map for a dream practice and includes writing down goals and planning how to achieve them. Before taking on a new start-up, one must ask some crucial questions. For example, how fast/competent are they at completing cases? How many cases can they complete in a day? How many days a week will the practice operate (depending on referrals)? How will dental emergencies be accommodated? The answers to these questions will help in formulating a solid business plan.

A business plan should include three sections: An executive summary, a narrative, and the financials. The first step in this process is gathering information. For example, research the number of dentists in the area, the socioeconomics, and population growth, create general fees for service, and estimate daily, weekly, and yearly production goals. Also, how much money is needed, and a repayment plan. Describing these details represents the overall vision and successful execution of starting a practice. Therefore, it is always best to write the executive summary last. Next is the narrative, which includes the business overview, such as the corporate structure, and describes services the practice will provide. The narrative should also include a marketing analysis plan, business operations, and staffing plan. The final business plan section is the financials and should include a projected income and cash flow forecast. In addition, the financials should include a section describing the total funds needed over the next two years and how borrowed funds will be used.

While starting up a practice from scratch may come with a lower price tag, the existing practice route allows more significant initial income due to existing business operations, an immediate referral base, and the revenue stream that comes along with it. In addition, purchasing an existing practice typically involves goodwill which can be expensive but worth the cost if the revenue stream is in place.

Finding an existing practice for sale is easy. Many practices advertise on broker websites, newsletters, and national dental journals. Dental supply/equipment reps are also good resources for finding a practice in a specific area of interest. After finding a desirable practice, it is imperative to gather a team of experts. Look for a lawyer versed in the practice of business transitions, an accountant, and a lender. Gather as much information from colleagues in the field who have also gone through the process. Next, get a picture of the overall health of the practice. For example, is the practice contracted with any insurance providers? What are the endodontic procedures utilized in practice? Financial data includes revenue, production/collection, overhead, and expenditures. What is the number of referrals? Also, find out why the endodontist is leaving. If it is for any other reason than retirement, dig deeper. Do not believe all verbal statements or insinuations from a seller or broker. Instead, ask to look at the actual data. If the seller/broker is unwilling to provide this information upon signing a non-disclosure, something may be hidden, or the numbers may not be accurate. On the other hand, if the seller has a great practice and is willing to stay as a short-term associate, do not finagle over a slightly higher sales price.

Most endodontists will settle their careers in the practice they start or join just after residency. Therefore, it is critical to approach initial career decisions cautiously and have a well-formulated plan. Remember to enjoy the process, be diligent and turn that dream practice into reality.

Dr. Sean Lawson is a Diplomate of the American Board of Endodontics and in solo practice in Roanoke, Va.