What to Consider Before Entering a Practice Partnership

By Lisa Radman White

If you are joining a private practice with the goal of pursuing a partnership, you need more information than someone who is just accepting a job.  Business partnerships are like marriages, so it’s important to choose wisely.   If you and your potential future partner are having open, detailed conversations about what matters most to each of you, your chances of success increase dramatically.  Some important questions to consider are:

1. Will you be offered an equal partnership?
2. How long should you be an associate prior to partnership?
3. How and when will the price be set for the partnership?
4. What is the Covenant Not to Compete?
5. What insurances are accepted, and what are the reimbursement rates?
6. What is the exit plan if this arrangement doesn’t work out?

It is essential to have clear answers to these questions so that you understand whether the opportunity truly aligns with your goals.  If a practice owner plans to bring you on with a path to partnership, take the time to ensure it is the right fit for you.

1. Radman, White & Associates feels strongly that partnerships should be equal so that everyone is on the same level.  It rarely makes sense to buy a fraction of a practice, as you want to be equal partners.  If you are purchasing less than an equal amount then you are purchasing profit sharing.  That might put more profits in your bank account, but it would likely be very challenging to sell.  Most people do not want minority ownership in a practice.
2. A minimum of one year together gives you a clear sense of whether you want to (or don’t want to) move forward. A timeframe greater than three years is excessive in our opinion, and benefits the owner significantly.   Eighteen months to two years is what we have found to be the sweet spot for an associate period and would be a fair arrangement for everyone.
3. Most often, the price for partnership should be established prior to you picking up a handpiece. The main reason is that you don’t want to spend time marketing yourself and growing the practice, only to realize that you are increasing the purchase price you will eventually pay.  You shouldn’t have to pay for the growth you contributed to the practice.   If there is a substantial queue of patients and you will not be required to grow the practice, then it likely makes sense to set the price after the backlog of patients has been handled.   Usually, this price is set after you have been with the practice for six months, possibly a year.  Even though the partnership is in the future, you should absolutely have access to the tax returns for the last three years so that you can understand the profitability of the practice.
   • When we value a practice, we set the price so that the purchaser is expected to take home associate type wages after paying the overhead and the debt required to own the practice. At a minimum, you should be able to take home 40 percent, sometimes over 50 percent, while paying off the debt and expenses.  While most banks loan on a 10- or 15-year term, we like to be conservative and usually examine the numbers based on a 7-year payback.
4. A CNTC should cover the area around the practice that generates approximately the top 85 percent of referrals. It should not include other offices that might be opened.  Rather, it is in place to protect the current referrals and the practice as it stands today, which is reasonable and fair.  In most states, these CNTC’s are still enforceable.  Before you join a practice in the exact place you want to be long term, you need to consider the implications of this CNTC, should this arrangement not work out.
5. At a minimum, you want to ensure that the practice you are joining doesn’t accept plans that reimburse at a low rate.  You don’t want to be committed to doing work at a rate far below market.  For example, we once saw a situation where an endodontist brought in an associate, added plans for the associate, but stayed all fee-for-service for himself.  This is not the type of partner I would want.
6. You enter the practice with the intention of everything working out. However, what if you completely misjudged the situation?   How do you get out?  We include a 30-day notice clause for both the practice and the associate.  No one should be forced to work somewhere that isn’t a fit, and this clause allows you to give notice and move elsewhere quickly.

While these are all important considerations, the absolute nonnegotiable is that you and the endodontist you are considering joining are compatible.  Do you both agree that quality comes first?  Do you both agree about how patients and staff should be treated?  If the two of you do not have aligned work ethics, this is not the practice, nor the partnership for you.  Unless there is a shared philosophy, we cannot recommend that you move forward.

Partnerships can be incredible.  Partnerships provide someone to collaborate with, share overhead with, and bring different strengths to the table.  The office can be covered while you are out, allowing both partners to step away when needed while maintaining a structure that can be very satisfying overall.   Just remember:  a partnership is like a marriage, and you certainly wouldn’t marry someone you don’t mesh with.  So, gather as much information as you can before making that commitment.

Lisa Radman White is the president of Radman, White & Associates, Inc., a firm dedicated exclusively to endodontic practice transitions. The company was founded in 1998 after her father discovered firsthand how difficult it was to sell his endodontic practice as the transition market did not understand an endodontic practice.  Radman, White specializes in endodontic transitions.