Are you a dental entrepreneur ready to take your dental practice to the next level by bringing on an associate partner? This strategic move can propel your dental practice / dental group / DSO forward, but it requires careful planning and consideration. Here are seven key steps for successfully bringing on an associate partner.
Financial Clarity
Before embarking on this journey, it’s key to assess the financial health of your dental practice / dental group / DSO. Are your financial statements accurate and up-to-date? Are you prepared for someone to scrutinize your books and question expenses? Establishing financial clarity sets the stage for transparent discussions with potential associate partners and ensures alignment on financial goals and expectations.
Profit Sold
As a dental entrepreneur/owner leading the vision of your dental practice / dental group / DSO, you’ll need to determine the amount of profit you’re willing to sell and at what price. This decision requires careful consideration of your dental group’s financial performance and growth potential. By defining your profit parameters, you can negotiate terms that are fair and equitable for both you and the associate partners involved.
Distribution Rules
Establish clear rules for profit distribution to your associate partners, including the frequency of distributions and the minimum capital retention requirements. Quarterly distributions can provide a structured approach to cash flow management and ensure ongoing financial stability for your dental practice / dental group / DSO.
Exit Options
Outline the options available to your associate partner in the event of an exit. Who can they sell their stock to, and when can they sell it? Will they participate in an exit, and to what extent? By addressing these questions upfront, you can minimize potential conflicts and ensure a smooth transition in the future.
Stock Choice
Choose the appropriate stock type for your partnership, whether it’s phantom stock, restricted stock, common stock, or preferred stock. Each option offers different levels of participation in profits and exit opportunities, so consider your long-term goals and the preferences of your potential associate partner.
Entity Choice
Decide which entity will sell stock to the associate partner, whether it’s the dental practice entity, sub-DSO, or holding DSO. Each option has its advantages and disadvantages, so weigh the pros and cons carefully to determine the best fit for your dental group’s growth strategy.
Business Governance
Define the rights and responsibilities of both parties – you, the dental entrepreneur/owner, and your associate partner(s) – in the operating agreement. Clarify decision-making processes for hiring, firing, and capital expenditures, as well as general management of the dental practice / dental group / DSO entity. By establishing clear governance structures, you can minimize conflicts and ensure effective collaboration between you as the dental CEO and your associate partner(s).
Why This Is Ideal
Dental leaders/executives value distributions over exit value, making this partnership model attractive for passive income solutions. It ensures ongoing involvement and collaboration at the practice level while keeping the buy-in price reasonable for potential associate partners Then by focusing on improving individual practices, dental entrepreneurs can drive growth and success within the associate partnership.
Next Actions
Answer the questions for each of the seven steps and document your answers. Then, meet with an attorney to flesh out the details of your partnership agreement and ensure legal compliance.
These steps can help you navigate the process of bringing on an associate partner with confidence and set your dental practice / dental group / DSO up for long-term success. Remember to prioritize open communication, strategic planning, and alignment of goals throughout the partnership journey.
Join our email list to get resources on topics like this and more every week. Sign up here.
