Are you thinking of adding an associate?

By Megan Urban (Consultant), AKT Advisors


What should you do when your skill, hard work, and passion have resulted in a successful practice? There are many experts that claim the only way for you to make more money is to add an associate. While that can be true, some have leapt at the opportunity to grow revenue by adding an associate and (perhaps) opening another office, often with disappointing results. Unlike the “field of dreams,” they built out their practice but the patients didn’t come. Or they added an associate and their income dropped.

This article helps practitioners look before they leap by identifying the following: early indicators for expansion, key factors that impact financial performance, and other considerations necessary when bringing on an associate dentist.

Are you Ready?
Whether you’ve been thinking about bringing another dentist into the practice or not, there are a few signs that suggest it’s time to give expansion some serious thought:
• You are scheduling new patients out more than several days.
• You aren’t able to keep pace with periodic exams for your hygiene patients.
• You aren’t able to perform treatment for patients in a timely fashion or may not have availability for your patients’ referrals. Both result in a loss for your dental practice.
• Your patients and/or team have let you know your quality of service is slipping and they are stressed out.
• You are working longer hours and/ or more days per week than you’d like, leaving you in bad health, physically and emotionally, and short on family or fun time.
• You are contemplating retirement in the not-too-distant future and need a strategy for business transition that makes sense for your patients and your financial future. Having an associate with skin in the game allows you a couple of years to potentially slow down, save more money, add extended hours for your patients, and prepare the associate to improve skills and gain business management knowledge before taking over the practice.

Ideally, you’ll catch a glimpse of one or more of these thresholds and start the planning process long before you bump into them. As noted below, you need lead time to assemble your team of advisors, consider your options, and set the wheels in motion to move forward.

Preparing for Expansion According to industry benchmarks, a full-time dentist typically serves 1,800- 2,000 active patients on a sustained basis. If you choose to add a full-time associate, you need to sort out how you’ll swell your patient ranks by that amount. Some questions to consider:
• Is the local market ripe for expansion in dental services? Are the surrounding neighborhoods stable or transitory? Are new housing developments in the works? How much competition do you face? Do you have a competitor that is ready to retire and you could purchase their practice?
• Given an effective marketing campaign, what constitutes a reasonable expectation for the number of new patients that you will attract each month? How might you engage your current clientele to stimulate referral business?
• Are you prepared to transition some of your existing patients to the new associate? If so, how will you manage your relationships such that you maintain their loyalty to the practice and promote trust in the new associate? Is the associate open to working part-time as you work together to build their practice?

As you forecast revenue associated with adding a dentist, be mindful of the fact that while an experienced general practitioner may produce/collect $4,000- plus per day, daily production for a new graduate could be closer to $2,500. If you have PPOs or Medicaid, you have to allow for the associated write-off to production that is uncollectible.

In addition to adding an associate, you may also need to add a dental assistant and hygienist to help the new associate and take care of the increase in patients. When fully occupied, each hygienist should account for $1,200 to $1,500 in daily revenue, at least 35 percent of total office production, and they should produce 3-4 times their compensation. Hygiene capacity is a good way to increase not only hygiene production, but also the dentist’s production due to the additional diagnosed wanted or needed treatment from all the added periodic exams. Hygiene is patient retention but we often see the continuing care part of the dental software not set up and utilized correctly which means patients are slipping through the cracks. Before adding an associate it is important to ensure this system is set up correctly and is consistently utilized.

Beyond labor costs and associated supplies, you may also need to make a capital investment to provide two to three operatories per full-time dentist, depending on the type of dentistry being done. Whether you expand your existing office, move to larger quarters, start up, or purchase an additional location, you need to consider how the expansion will be financed as well as the required lead time until the new quarters are fully operational. When working with your CPA, consider asking them if you could apply IRC Section 168 or Section 179 to help you find the dollars to reinvest in your dental practice.

• You should collect at least 98 percent of your adjusted production (i.e., total billings less all write-offs such as insurance and courtesy). So, if adjusted production for a recent
graduate is $52,500 for the month, collections should be at least $51,450.
• Your total accounts receivable should be less than a half-month’s production, unless you allow in-office payment plans.
• Aged accounts receivable (i.g., 90 days or more past due) should be less than 5 percent of total accounts receivable unless you allow in-office payment plans.

If your statistics fall outside these guideposts, focus on collecting unpaid insurance and patient balances while establishing effective policies and procedures to set solid financial arrangements and keep your accounts current.

Once you’ve made the decision to move forward with staff expansion, there are a host of details to iron out. A few considerations include:
• Will the new associate be working as an independent contractor or an employee? The IRS has a specific definition for independent contractor.
• How will you compensate the new dentist? What benefits should you be prepared to offer or have to offer if the associate is a full-time employee?
• What type of agreements and contracts are necessary to define mutual responsibilities and expectations, non-compete, non-solicitation, future potential buy-in, termination details, etc.? Do you have a solid office manual in place to cover all other details?
• Who pays for licensing, malpractice insurance, continuing education, and related expenses?
• Will the new associate need insurance credentialing and how long will that take? Do you need to work with a former employer to receive any insurance payments that go to them in error?
• Will this dentist complement you— can they add procedures or services that you do not offer so you can keep that treatment in-house? Are they able to work different hours/days, such as evenings and weekends, to provide extended patient hours? Are they different in age or gender, allowing your patients options that make them comfortable?

If the prospect of adding a full-time dentist proves daunting, you could consider options for instituting a gradual increase in capacity. Possibilities include:
• Finding dentists who want to work part-time, such as associates transitioning into retirement, or young parents with childcare responsibilities.
• Hiring a part-time associate who works part-time for another practitioner.
• Reducing your work schedule on a temporary or permanent basis.

Whether you choose to leverage full-time or part-time staff for dentists, dental assistants, and hygienists, think carefully about your ideal candidates. Consider the technical competencies and levels of experience that complement existing staff and/or bring more options to your patients. Think about the personal
characteristics that best fit your work style and enhance the patient experience. You may get a sense for “fit” by asking questions for which there aren’t ready answers on a resume. For example:
• If I asked you to write a one-page memo about yourself that did not include any of the information on your resume, what would it say?
• Which of your accomplishments has given you the most satisfaction in life? Why?
• What’s the hardest life lesson that you had to learn in your last practice? In what ways have you changed as a result of it? If we asked the team and dentist at your last practice to describe you, what do you think they would say?
• What kind of practice are you looking for? What motivates you to give your best effort to take care of your patients and lead your team?
• Describe one or more situations that occur frequently in the position that you seek to fill. How would you handle it/them?
• What would you say are the top three to five characteristics that make a dental practice successful? Which of your personal characteristics contribute to that success?
• What specific goals have you established for yourself in the next two years and ten years?

Think about the extent to which each candidate’s skills, experience, internal motivations, and personal style align with the environment in which he or she will work. Are they in accord with your plans and expectations? How will your team and patients respond? Do you think this individual will find the position satisfying?

Seeking Professional Advice
Experienced practice management professionals can provide the guidance and analytical support to assess your business opportunities and craft a plan consistent with your unique circumstances, timetable, and goals. They’ll provide detailed recommendations to strengthen your current operation while setting realistic expectations for your financial performance going forward. They’ll also outline the up-front investment necessary to achieve growth.

While a successful practice provides the foundation for growth, the right team of advisors helps you build a solid future.

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