Dental Strategies For Success library

Positioning for Transitioning Case #1

by W. David Griggs | 07/02/2009 | Financing & Financial Planning , Dental

No Longer A Retirement-Only Strategy!

Doctors at all career levels are prospering today from planned transitions. Here are just a few examples:

 

 
• Early-career doctors are enjoying immediate income and rapid practice establishment through buy-in and outright purchase transitions with established doctors.
   
• Mid-career doctors are increasing profits and cashing in practice equity through associate-to-partner transitions with “new” doctors.
   
• Early-career and mid-career doctors are rapidly expanding their practices through merger-acquisition transitions with “senior” doctors who are approaching retirement.
   
• Late-career doctors are selling “early” through deferred buy-out and pre-retirement sale transitions, providing them a glide path into retirement in a management and overhead-free environment.  Of course, traditional retirement transitions are still being pursued by those doctors in late career who are financially (and emotionally) ready to retire.

Economic Uncertainty Means New Thinking

The questionable future of the economy has suddenly dominated the theme of many conversations between doctors and practice transition consultants. As a result, information on “what to do,” “when to do it,” and “how do go about it” is more in demand than ever before. Most importantly, doctors say that they want unbiased advice based on what’s in their best financial interest, as opposed to the interest of those who may benefit financially from the doctor’s decision to initiate a transition.

 

Some doctors worry that they may have waited too long to successfully transition their practices and maximize the benefits for themselves and their families. However, mistakes can be made by those doctors who start too soon as well as by those who start too late. Therefore, careful planning becomes crucial – and that planning should begin prior to bringing other doctors into your practice.

Which, When, How? The Art of Discovering “What You Don’t Know”

So, how do you determine the right transition strategy to pursue, the right time to implement it, and the right steps involved in positioning yourself for transition? After twenty-eight years of observing practice transition business, it’s clear that a transition offers great opportunities for those doctors who plan, but can also lead to disastrous end results for the unsuspecting. Hence, it’s critical to understand three things when considering a transition: (1) discovering what you don’t know, (2) knowing what to look for, and (3) knowing what to look out for.

 

Following is the first in a series of case studies of doctors making important transition decisions in a number of practice situations. In some cases the practice owners achieve great results, while others experience disappointing outcomes. We’ll be looking closely at why some of the doctors succeeded beyond their wildest expectations while others failed, and how their approach to “discovering what they didn’t know” influenced the outcome.

Case Study #1: Associate Buy-In Transition

The first case study is a “good news” story showing how one doctor achieved financial and quality-of-life freedom by properly positioning himself and his dental practice for transition.

 

Practice Profile: Fifteen-year-old solo practice

Goal: More profit, office coverage, time off

Transition Steps:

 

 
• New Associate doctor (#1) recruited to expand production
   
• Half the practice sold to New Associate (upon the 18th month)
   
• Two-doctor practice shared overhead and profits
   
• Second New Associate (#2) recruited five years later
   
• One-third of the two-doctor practice sold to New Associate #2
   
• Three-doctor practice shared overhead & profits
   
• Established doctor sold remaining interest and retired at age 62

Financial Benefits:

 
• Practice profit margin greatly increased
   
• Practice equity cashed-in three times by Established Doctor
   
• First Buy-In: $350,000 to Established Doctor
   
• Second Buy-In: $210,000 to each Co-Owner
   
• Final Buy-Out: $515,000 to Established Doctor

Following the first Associate’s buy-in, the two doctors practiced as co-owners and benefited from a tiered compensation model that rewarded productivity, co-ownership, and shared management responsibilities. As a result, the Established Doctor enjoyed increased profits from the first New Associate’s production, along with increased free time due to the sharing of practice management responsibilities.

When New Associate #2 joined the practice, the current co-owners enjoyed additional profits and practice expansion from the second Associate’s production. In addition, each of the two original co-owners profited from the sale of a portion of their practice to New Associate #2, creating a three-doctor practice model with co-ownership among all doctors. Years later, the Established Doctor sold his remaining one-third interest to his two practice partners, bringing to conclusion the “first transition cycle” of a model for perpetual succession of all doctors who enter the practice.

A key to the success of this doctor’s transition was knowing what type of practice associate to look for. The doctor needed to find partners who were team players interested in ownership (not just a job!), and who were committed to a long-term strategy for practice transition success.

From this case-study example, it’s easy to see why associate buy-in transitions are the most commonly pursued transition model today.

Plan Your Transition to Ensure Success

Of course, not all transitions are created equally, and there are several classic transition mistakes every doctor should be aware of and try to avoid (See Case Study #2).

But the good news is that most practice transitions are successful, and when you carefully plan and position your transition you have every opportunity of a smooth and rewarding life change.

_{Statements of opinion not necessarily endorsed by ADA Member Advantage, ADA Business Enterprises, Inc., or the American Dental Association, or any of its subsidiaries, counsels, commissions, or agencies.}

W. David Griggs, DDS, has been a practice transition consultant for over 28 years and has been involved with over 2,000 transitions during that time. He has personally experienced the benefits and pitfalls of 'transitioning' as an associate doctor, practice owner with associates, seller, and purchaser of a private practice. Dr. Griggs is the author of 'Successful Practice Transitions,' the best-selling book from PennWell Publishers. Dr. Griggs is currently the president of The Transition Group in the Tampa Bay Area (thetransitiongroup.com).