Should I Start a Practice on my Own?

You have decided that you want to be your own boss but don’t want the baggage that comes with purchasing someone else’s practice. By starting up on your own, you have the freedom to mold it into what you want it to be. You can decide the location, the type of patients you want, and the profile of the staff you want to hire. You can control the work day, work week and vacation schedule. But starting your own practice from the ground floor is expensive, challenging, and fraught with financial, management, and business decisions. Before starting your own practice you need to consider the following:

• Entity Selection – Will it be a corporation or partnership?
• Financing – Where will it come from? How will I find it? Will I qualify? What are the best terms?
• Equipment – What are the benefits of purchasing? What are the benefits of leasing? What are the financial implications? Are there any tax benefits derived from either or both?
• Revenue Stream – What will be your patient base? What percentage of your revenue will come from cash & carry or Medicare? Have you considered additional profit centers for your practice?
• Insurance – What type and how much insurance is needed for my practice? Do I need long-term disability? Do I need life insurance? How much malpractice insurance do I need? What other liabilities do I need to cover?
• Location – Have you researched demographics? Are you willing to move? How accessible is the location? Does you location fit with your patient profile?
• Patient Profile – What is the ideal age distribution of your patients? What is their financial profile?
• Human Resources – Will you staff your office with employees or will they be contract? What are the respective benefits of each? What are the drawbacks?
• Reason for starting a practice – Do you have a clear, thought out reason for starting your own practice? Do you know what you want to accomplish? Have you seriously considered other options?

Should I Purchase a Practice?

Rather than starting a practice from scratch, many dentists opt for purchasing an existing practice – (for the purpose of this article I am only discussing buy-out as opposed to a buy-in).  You assume there are great advantages to this option: you can hit the ground running with an established patient base, equipment, staff, technology, office managements systems, etc. With all of this in place, you will have the advantage of walking into an established practice with the expectation that you will have a steady income stream at least equal to the one afforded the previous doctor. Buyer beware! Never assume that the practice will continue on the same trajectory. During the transition period, your expected income may, in fact, decline if your patients decide to go elsewhere. But before you ever get to that point, you need to have a clear understanding of the practical elements that need to be considered when thinking about purchasing a practice:

• Valuation – Have you engaged a reliable business valuation analyst? Do you have a comprehensive understanding of the value of the practice?
• Due Diligence – Have you reviewed the revenue stream? Do you know if there are outstanding debts or collection issues? What is the make-up of the accounts receivables?
• Revenue Sources – What is the percentage of PPO, Private Pay and Medicaid patients?  What additional revenue sources support the practice?
• Purchase of A/R – Have you addressed whether accounts receivable will be purchased or retained by the seller? What is the relative benefit of one over the other?
• Purchase Price Allocation – What is the purchase buying? Have you determined how the assets will be allocated? What is the breakdown of tangibles and intangibles? What are the tax implications, if any?
• Practice Background – When was the practice started? What are the growth trends of the practice? Is the practice technologically progressive or traditional?
• Employees – What is the age breakdown? What are their qualifications? How many are there? Are they part-time, full-time, or contract? Are they open to new ideas, advancements, continuing education, and technology?
• Patient Base – What is the age distribution? What is the financial profile of the patients? Where do they live?

Should I join a practice?

With looming dental school loans to repay, many dentists opt for the most economical choice, joining a practice with an eye towards eventually becoming a co-owner or sole owner of the business. That being the case, you should not invest time and effort as an associate of a practice you would never consider buying. It is incumbent of you to look at any practice you want to join through the lens of a buyer, taking into account all of the elements listed above. In addition, you need to be aware of the following:

• Doctors’ compensation – Are there individual collections and shared overhead? Is there a fixed compensation plus a bonus? Is there equal compensation for all doctors?
• Structure of the deal – Will you be joining a partnership or a corporation? What are the financial implications of each option? How will it impact compensation?
• Fees – Does each dentist determine his or her own fee structure or is it set by the practice? How has the practice determined the fee schedule? Is the practice in line with the fees of other practices?
• Physicians’ Work Habits – How many days a week do they work? How many hours a day do they work? What are the norms and expectations? Do their work habits and ethics mesh with yours?
• Physicians’ willingness to compromise- Will your suggestions and ideas be considered? How will a disagreement be handled?
• Expenses – Will the practice subsidize your expenses or waive your expenses as you start to build your practice? Are there any significant equipment purchases scheduled for the near future? If so, what is your financial exposure?
• Patient distribution – Who gets new patients when they call for an appointment? Is there a written policy?

By no means is this a comprehensive list of what new dentists must consider before starting, buying or joining a practice; but it is a starting point. Keep in mind, the new dentist does not have to take on, and should not take on, this daunting decision alone. The first step in any successful business dealing is to engage a trusted advisor who has the experience to guide you in the direction that is right for you and the depth of knowledge to navigate you through all of the financial considerations.

As a Partner of Goldin Peiser & Peiser, LLP, Erick Cutler’s diversified background includes an in-depth understanding of tax strategies including cost segregation. Erick’s comprehensive knowledge of segregating hidden costs outside of standard depreciation, helps to reduce property owners’ tax liabilities. Additionally, Erick and his team keep abreast of the complex implications surrounding the Texas Franchise Tax, as well as the manufacturing credit, Section 199.

When a crisis in a practice occurs, chaos and uncertainty can prevail, for all parties involved.  Family members of the practitioner may be faced with significant economic issues as well as management concerns.  The office staff has lost its leader and main producer. The patients are uncertain what the future of their care might be.  The solution to minimize the potential for disaster is to have an Action Plan in place.  Every practice and every owner must have an Action Plan in place to deal with such an event.

The Action Plan for a practice details the events that should take place immediately after it is discovered that the practitioner will be out for an extended period.  Prior to implementation of this Action Plan, I highly recommend having some or all of the following Practice Protection vehicles in place.

1) Will- We all hear and read about the importance of having a will.  However, every year, I am required to help transition a dental practice where the deceased neglected to have a will.  This simple document will help expedite the sale, protect the value of the Estate and have the property of the deceased distributed as they wish, not as the State wishes.  If you don’t do anything else after reading this article, get a will.

2) Consider a Codicil to your Will- A Codicil is a document executed separately from your will that details the steps to take for the sale of your practice in the event of your death.  This Codicil typically appoints a representative/agent to act on your behalf to expeditiously sell the practice and make those critical, timely decisions necessary to accomplish this.

3) Establish an Emergency Aid Group in your dental community.  In short, an Emergency Aid Group is a network of dentists who have agreed to assist a fellow practitioner’s practice on a limited basis immediately after a crisis.  The purpose of the Group is to volunteer to work at the office in crisis until a permanent solution is found, or the dentist can return.  Each member/dentist of the Group volunteers for a half or full day without compensation.  In most cases, a Group Leader is appointed who coordinates the scheduling of the members with the assistance of a key staff member (we’ll discuss this later) from the practice in crisis.  The Group Leader role rotates within the group each year.

4) Insurance Policies-  There are 3 basic types of insurance coverage that can provide financial benefits to the practitioner (disability), the practitioner’s family (life insurance) and the practice (business overhead insurance).  The benefits and security that each of these types of policies provide can be immeasurable at a most critical time.

5) Maintain a well informed family and staff- Key family members and key staff members should be aware of the existence and location of all of the above mentioned documents and policies.  Make sure your family knows where the will is, whether a Codicil is in place, what insurance coverage you have and with what company, and whether you are member of an Emergency Aid Group.

The 2^nd element for creating practice stability in the time of a crisis is the implementaion of an Action Plan through an appointed key staff member.  Choose a staff member that is reliable, level headed and a leader in the time of crisis.  This key person, the Action Plan Administrator, will work closely with your family, the Emergency Aid Group, and a practice Broker if necessary.  The Action Plan Administrator will also coordinate practice communications to the other staff members and the patients.  Once an Action Plan Administrator(s) is chosen, make sure that your family is aware of this.

The key to retaining patients, and therefore maintaining financial security and stability for all, is to have a practice wide positive attitude.  This attitude comes from having a guideline to follow.  When a practice is floundering due to uncertainty, the patients easily pick up on this uncertainty as well.  One key fact to remember is that most patients are extremely loyal to a practice in the time of a crisis.  They only lose that loyalty when they sense uncertainty, chaos, or that the truth is being withheld.

My involvement with numerous crisis situations has led me to develop the following recommendations:

1) The Action Plan Administrator, in conjunction with the family and broker, should develop and document a story line for the staff to use in communication with patients and the public.  The story line should be written out so that all staff members use the same wording.  For example-  “Dr. Smith was involved in a _____ accident on the weekend of November __.  As a result of the accident, Dr. Smith will be out of the office for approximately ___ months to recover.  We are fortunate that Dr. Smith is a member of a group of fellow dentists who are volunteering to treat our patients until Dr. Smith returns or until we select a qualified full time Associate.  We have already interviewed a number of qualified dentists and will be selecting the best candidate to provide your care in Dr. Smith’s absence.”

2) Adopt a “Business as Usual” attitude.  Maintain the office hours and schedule. Retain staff members as well.  The worst decision is to shut down the practice, drastically curtail the hours worked, or dismiss staff.  It is critical to maintain the vitality of the practice during a crisis period, whether the owner will be returning or not.

3) Act Promptly and Decisively- If an Emergency Aid Group is in place, the sooner they step in, the better.  If the practitioner is going to be out for longer than 3-4 weeks, it’s wise to consider hiring a full time Associate.  Local temp agencies, practice brokers and practice consultants are all sources to help the practice find the associate that will be best suited to the practice.  There are also resources available to assist the Action Plan Administrator in structuring the terms of employment, including compensation, for the Associate.

4) Retain knowledgeable experts- When an event occurs that results in the practitioner not returning, it is advisable to retain an independent, unbiased expert to assist in the practice transition.  Grieving family members, upset staff members or inexperienced advisors cannot make timely, unemotional or realistic decisions for the practice future.  The practice future, and the financial security of the family and staff members requires an efficient orderly transition.

5) Create a list of key contacts- Make sure the Action Plan Administrator has a list of your advisors.  This list would include; attorney, accountant, financial advisor, banker, and key consultants.  The Action Plan Administrator should also know how to contact your key family members.  In addition, if you are the Top Level Administrator for your practice software (which you should be), please have someone outside of the office in possession of the password.  This could be your spouse, another family member or your CPA.  Lastly, every online account you have has a password associated with it.  Make a listing of all of these passwords and make sure that someone trustworthy knows where the list is.

This article is not intended to be all encompassing, but more to encourage you to start processing the complexities that your office and family will face if a crisis occurs.  Preplanning for a crisis is one of most thoughtful, loving actions you can take today to help your staff and family survive and endure the process in the future.

Dan Lewis, Lewis Health Profession Services, Inc.  (972) 437-1180. Dan@lewishealth.com

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